Royal Philips NV (PHG) plans to buy medical-imaging company Volcano Corp. (VOL) for $1.2 billion, in one of Philips’ largest acquisitions in years, according to a Bloomberg report.
The purchase of San Diego–based Volcano will complement Philips’ live image-guided therapy “to a high single-digit rate by 2017,” said Philips chief executive Frans Van Houten. Amsterdam-based Philips announced its intentions in September to spin off its lighting business in 2016 to focus on healthcare technology.
Philips sells about a third of the x-ray vascular imaging devices used in major cardiac surgery hospitals, while Volcano specializes in "smart" catheters that can measure blood flow as it passes through the veins, according to an Associated Press report.
Analysts were surprised at the price Philips agreed to pay for Volcano—$18 per share—a premium of nearly 60% to its closing price of $11.49 on Tuesday, when the merger was announced. Philips will also take on $200 million of debt to finance the deal.
On a conference call, Van Houten defended the offer as “very justifiable…We needed to act right now,” the AP reported.
Volcano specializes in catheter-based imaging and measurements for minimally invasive diagnostics, and treatment of coronary artery and peripheral vascular diseases, posted 2013 sales of approximately $400 million, according to a statement announcing the merger.
Philips expects the purchase to bring in new customers and boost sales in the nearly $5 billion EU image-guided therapy market by cross-selling to both companies’ existing customers, the statement said.
Volcano came in for some sharp criticism in October when Glenn Welling, founder of shareholder Engaged Capital, rebuked Volcano executives for overpromising earnings while overcompensating themselves.
Welling also slammed Volcano for its $115 million acquisition of AtheroMed Inc. (Menlo Park, CA), calling it a “high-risk, swing-for-the-fences proposition.” AtheroMed makes a catheter-based system to treat peripheral artery disease. Volcano defended the acquisition and listed other actions it has taken in 2014 to improve earnings, including settling all lawsuits with St. Jude Medical (Little Canada, MN).
Once the transaction with Philips closes, Volcano and its 1800 employees will be part of a dedicated, new image-guided therapy business group within Philips.
