Philips Chief Executive Officer Frans van Houten said, “The agreement to acquire... Read More
Shareholders of Volcano, whose equipment enables minimally invasive diagnostics and treatment of coronary artery disease, will receive $18 a share in cash, Philips said in a statement. Stock of the San Diego-based company closed at $11.49 yesterday.
The takeover comes almost three months after Philips Chief Executive Officer Frans van Houten’s announcement that the 123-year-old Dutch company will be split into two, separating the lighting unit as he focuses on health-care equipment and consumer goods. Van Houten said rival interest from competitors and a decline in Volcano’s share price spurred Philips to make its move.
“While this transaction will bolster Philips’s presence in image-guided therapy, a segment with above-average growth and margin potential, it comes at a high price,” Peter Olofsen, an
Amsterdam-based analyst at Kepler Cheuvreux, wrote in a note. Execution will be key for this deal to create shareholder value, said Olofsen, who has a hold recommendation on Philips.
Philips fell as much as 4.4 percent in Amsterdam trading, the biggest intraday drop in almost two months. The shares were down 2.7 percent at 22.47 euros as of 11:26 a.m. local time, valuing the company at about 21 billion euros ($26 billion).
‘Lofty Multiples’
Volcano’s 2013 sales amounted to about $400 million, Philips said, adding the transaction will probably be completed in the first quarter. Profit has been on a slide since 2011, culminating in a net loss of $34.5 million last year.The price tag implies “lofty multiples,” including an enterprise value to sales ratio of three times, and 32 times for earnings, Olofsen said.
Volcano is Philips’ largest acquisition since the $4.62 billion takeover of Respironics Inc. in 2008.
“We had been on the look-out for this company,” the CEO said on a call. “In the summer there was heightened interest by competitors so we decided to engage.”
Rapid Recovery
Van Houten said Philips will be looking for a rapid turnaround in Volcano’s performance.The transaction, valued at a total $1.2 billion including cash and debt, is expected to be accretive to Philips’ reported earnings per share by 2017, and the Amsterdam-based company is targeting a margin on earnings before interest, taxes and amortization of about 20 percent for its image-guided therapy business by that year.
Philips has identified sales and costs synergies, plus additional revenue streams from introducing its in-house technology through Volcano’s distribution network. The U.S. company has a much more “intimate” relationship with catheter centers as its disposable products are regularly replaced. Philips already provides durable equipment to operating rooms.
Lazard and Bank of America Merrill Lynch advised Philips on the transaction.
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