Onex to buy Kodak health unit for up to $2.55 bln
Wednesday January 10, 10:26 am ET
By Michele Gershberg
NEW YORK (Reuters) - Eastman Kodak Co. (NYSE:EK - News) said on Wednesday it will sell its medical imaging business to a unit of Canada's Onex Corp. (TSX:OCX.TO - News) for up to $2.55 billion, a key step in the photography company's strategy to focus on digital products and services.
Shares in Kodak rose more than 2 percent in early New York trading as the deal ended months of investor concern whether it would succeed in selling the unit.
Onex was down slightly in Toronto at C$28.28 as the conglomerate pushed forward with an acquisition strategy that spans steel mill services to aircraft parts.
Onex Healthcare Holdings Inc. will pay $2.35 billion in cash for the Kodak unit and up to $200 million in future payments if it achieves certain returns on the investment.
Kodak's Health Group makes X-ray film, medical printers and information systems. Rivals include General Electric Co.'s (NYSE:GE - News) GE Healthcare, Siemens AG (XETRA:SIEGN.DE - News),Philips Electronics NV (Amsterdam:PHG.AS - News) and Belgium's Agfa Gevaert (Brussels:AGFAT.BR - News).
The unit's revenue was $2.54 billion for the 12 months ended September 30, or about 17 percent of Kodak's business.
"It's quite a reasonable price," said Tom Carroll, vice president of research at Bullfinch Funds. He estimated the sale multiple at 10 times operating earnings, even as the Health Group sees such earnings decline more than 20 percent.
"One would really like to see (Kodak) pay down debt rather than make acquisitions," Carroll said. "It would give them additional flexibility in the digital area."
Kodak said it would keep most of the $2.35 billion in initial proceeds and use it to repay about $1.15 billion in secured term debt. The company will discuss other uses for the money at an investor meeting on February 8, its first such gathering in more than a year.
COSTLY TRANSITION
Kodak has made a costly transition to digital cameras and photo services, as well as bolstering its commercial printing operations, and away from its longstanding business of photographic film as demand declines.
"We now plan to focus our attention on the significant digital growth opportunities within our businesses," Kodak Chief Executive Antonio Perez said.
In one sign of its new strategy, Kodak said on Tuesday it was considering additional ways to bring in revenue from its digital properties, including possibly introducing advertising to its leading Web photos site.
Kodak said last May it was considering the future of the health unit, where profits have slipped after years of trying to compete in the high-tech medical imaging market.
But as months passed with no deal in sight, investors raised concerns that Kodak may not be able to fetch a good price for the unit or sell it in one piece.
Some 8,100 employees from the medical imaging business, or Health Group, will continue to work for the unit after the deal with Onex closes, likely in the first half of 2007, Kodak said. The sale also includes manufacturing operations and an office building in Rochester, New York.
Goldman Sachs (NYSE:GS - News) advised Kodak on the sale and Sullivan & Cromwell LLP provided legal counsel.
Kodak rose 10 cents to $25.73 on the New York Stock Exchange after advancing to $26.23 earlier in the session.
(Additional reporting by Ritsuko Ando)
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