Philips to Acquire Marconi Medical Systems for $1.1 Billion

In a move that caps a three-year acquisition strategy directed at matching GE and Siemens as global players in the total hospital market, Royal Philips Electronics (Amsterdam, the Netherlands) has agreed to acquire Marconi Medical Systems (Cleveland, OH, USA) for US$1.1 Bill.in cash. In addition, as part of the transaction, Philips entered into an agreement to purchase $150 Mill. of communications products and services from the selling parent, Marconi plc (London, UK), over the next five years. A number of analysts from financial circles expressed surprise on the lower than expected price, and interpreted it as a distress sale on the part of the troubled Marconi concern.

Coming on the coattails of Philips' acquisition of ATL Ultrasound in 1998, ADAC in late 2000, and Agilent's medical group which is scheduled to close in the third quarter of 2001, the current move will make Philips Medical Systems the world's second largest manufacturer of medical imaging equipment, just behind GE and surging ahead of Siemens. As a result of the Agilent acquisition, Philips will also be entering the patient monitoring area and establishing itself as one of the three global players in the total hospital market, in direct competition to GE and Siemens.

Currently, prior to the Marconi acquisition, all computed tomography (CT) devices sold under the Philips name are provided by Hitachi Medical Corp. (Tokyo, Japan) as the original equipment manufacturer (OEM). The Marconi acquisition will enable Philips to independently become a major manufacturer and vendor in the CT field, as well as further strengthen its magnetic resonance (MR) and nuclear medicine businesses. If restated to include the full impact of the Agilent and Marconi businesses, Philips Medical Systems would now represent more than $6.5 Bill. in sales revenue for the current calendar year. According to Philips management, having basically completed an extensive acquisition program amounting to $4 Bill., the company will now focus on integrating the acquired businesses and consolidating its global position in the marketplace.

Marconi Medical Systems, until recently known as Picker International, is an industry pioneer established in Cleveland, USA over 85 years ago. Acquired by the then General Electric Company plc of UK in 1981, the name change came in early 2000 to conform to its parent's new corporate identity under the Marconi name.

With global sales amounting to $1.6 Bill. and operating profits of $155 Mill., Marconi Medical Systems is composed of two separate businesses. The core Medical Imaging Equipment business (MIE), with worldwide sales of $1 Bill. and operating profits of $135 Mill., is a leading manufacturer and vendor of CT, MR, and nuclear medicine equipment. The Marconi Health Care Products business (HCP), with sales of $ 0.6 Bill. and operating profits of $20 Mill., is one of the largest distributors of radiology supplies in the United States. Philips has stated that it intends to divest HCP shortly after the acquisition.

The transaction is expected to close in the fourth quarter of this calendar year, and is subject to customary regulatory approvals and other closing conditions.


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