|Philips CEO Frans van Houten|
Philips ($PHG) is shelling out $1.2 billion for San Diego devicemaker Volcano ($VOLC) to gain ground in catheter-based imaging and beef up its offerings as it refocuses on its new healthcare business.
Under the terms of the agreement, Philips will launch a tender offer that includes Volcano's cash and debt, and will hand Volcano shareholders $18 a share in cash. Both sides stand to benefit from the deal, as the companies can combine their sales forces and R&D teams to develop minimally invasive treatments for cardiovascular diseases, Philips CEO Frans van Houten said in a statement. Volcano and its 1,800 employees will become part of Philips' new image-guided therapy business group, and Philips will gain access to Volcano's vascular ultrasound device portfolio.
The companies expect to close the deal in the first quarter of 2015, Philips said in a statement.
"The agreement to acquire Volcano significantly advances our strategy to become the leading systems integrator in image-guided therapies," van Houten said in a statement. "Volcano's impressive and unique product portfolio is highly complementary to our strong offering in live image-guidance solutions, creating an opportunity to accelerate the revenue growth for our image-guided therapy business to a high single-digit rate by 2017."
The acquisition comes at a critical moment for Philips and Volcano, as Philips forges ahead with its newly spun-off healthcare informatics business and Volcano tries to recoup from slumping sales and revenues. In September, Philips announced that it would split into two companies, one focused on Healthcare and Consumer Lifestyle and the other devoted to its lighting business. Its healthcare business, dubbed "HealthTech," would have had an estimated €15 billion in 2013 sales, Philips said at the time.
Meanwhile, Volcano struggles to generate growth after suffering from sizable quarterly losses and revenues that ring in below analysts' expectations. In September, Volcano shareholder Engaged Capital called on the company to evaluate strategic alternatives and conduct a search for a new CEO.
Not everyone is as optimistic about the deal, as investors and analysts are questioning the acquisition's benefit to Philips. Van Houten told Bloomberg that rival interest from competitors and a decline in Volcano's share price spurred the company to make a move. But execution of the deal will be key to creating shareholder value, Peter Olofsen, an Amsterdam-based analyst at Kepler Cheuvreux, said in a note to investors.
"While this transaction will bolster Philips' presence in image-guided therapy, a segment with above-average growth and margin potential, it comes at a high price," Olofsen said, as quoted by Bloomberg.
- here's Philips' statement
- read the Bloomberg story