GEC chairman's takeover comments prompt ire from Siemens and Philips

London newspaper says Picker’s parent may be eyeing either company

The chairman of Picker International parent General Electric Company stirred up a hornet's nest last month when he commented to a London newspaper that GEC could be eyeing the medical electronics businesses of Siemens or Philips as takeover candidates. Representatives from both European vendors dismissed the remark out of hand, while GEC itself later said that the possibility of an acquisition was "speculation."

The comments were made in an interview with GEC chief executive George Simpson that was published in the Jan. 24 edition of The Observer. In the article, the newspaper quoted Simpson as saying that GEC is considering using the profits from the sale of its defense business to acquire the medical electronics operations of either Philips Electronics NV or Siemens AG. The newspaper also said that while Picker is at the core of GEC's operations now that the U.K. company has exited the defense industry, analysts believe that Picker could be sold off if it doesn't grow fast enough, such as through a Philips or Siemens acquisition.

The catalyst for the controversy was GEC's decision to sell its Marconi Electronics Systems defense subsidiary to British Aerospace for about $13 billion. The deal will form two new companies: New British Aerospace, now worth more than $20 billion, and a pared-down GEC, with assets of approximately $18 billion. Picker makes up about 25% of the new GEC, according to Rob Spademan, spokesperson for the Cleveland company.

The deal will line GEC's pockets with as much as $4.5 billion in cash, which GEC said it is committed to using to bolster its communications and technology concerns, such as Picker. Indeed, since the Marconi divestiture was announced, the European press has been speculating as to how GEC would put the money to work.

The Observer article stated that if a Philips or Siemens deal did occur, either business could be merged with Picker's operations. Should the rumors prove true, it wouldn't be the first time that Picker has pondered a deal of this magnitude. Picker and Philips were close to merging in 1987, but the proposal later fell apart due to the financial impact of falling exchange rates for the U.S. dollar (SCAN 2/17/88). The valuations of both companies were affected, making the merger less attractive.

Between Siemens and Philips, a Philips combination would probably make the most sense because of the compatibility of product lines. Picker and Philips are respectable players in the MRI, CT, and x-ray markets, but their market shares usually lag behind those of the leaders, GE and Siemens. Merging operations would put these businesses on an even footing with the U.S. and German multimodality giants.

There is even more compatibility in other imaging sectors. Philips does not participate in nuclear medicine, while Picker has a long history in the modality and is on an upward swing, thanks to the 1997 introductions of its Irix and Axis gamma cameras. Likewise, Picker does not participate in ultrasound, a modality that Philips re-entered with a bang last year by acquiring ATL Ultrasound.

A Picker combination with Siemens does not make as neat a strategic fit, but is enticing nonetheless. There are some overlaps in product lines, but a merger would probably make the resulting company the world's largest imaging vendor. Siemens is nearly equal to GE in terms of global medical imaging revenues, with GE claiming medical imaging sales of $5 billion, while Siemens' Medical Engineering Group posted sales of $4.41 billion in fiscal 1998 (end-September). (The Siemens numbers include revenues from nonimaging healthcare businesses such as patient monitoring and oncology.) Picker, meanwhile, reported revenues of $1.1 billion for fiscal 1997 (end-March).

Simpson's public ruminations on a takeover may not have helped his company's prospects in securing a deal, however. Both Siemens and Philips are sensitive to divestiture speculation, in particular Siemens, whose Medical Engineering Group for the past two years has had to fend off rumors that its parent might be exploring a selloff. The division's improving profit picture and repeated statements by Siemens chairman Heinrich Pierer that Medical Engineering was a core Siemens business appeared to have calmed things down, until last month.

Siemens representatives dismissed the takeover rumors. There has been no contact between GEC and Siemens, and Simpson's comments are not to be taken seriously, according to Melanie Schmude, a spokesperson for the Erlangen company.

"We have never received an offer from them, and we would not consider it," she said. "(Pierer) has stated clearly that Medical Engineering belongs to Siemens and will for the future."

Philips representatives also denied the prospect of a sale. Even GEC seemed to be backing away from Simpson's comments as the impact of the Observer article reverberated through the industry. The day after it appeared, GEC characterized reports of a Philips or Siemens takeover as speculation, according to AFX newswire. That said, GEC executives were reportedly "holding intense internal discussions" regarding the company's strategic options, AFX said.

Should a major acquisition not materialize, GEC would probably plow its Marconi windfall into a stock buyback, Simpson said. GEC is also considering potential deals in the telecommunications industry, he told The Observer. Such an acquisition could include technology involving the transmission of medical images, bringing the firm into the telemedicine market, Picker's Spademan said.

The GEC rumors highlight the increased tension in the medical imaging industry regarding the long-term prospects of even its largest players. The recent spate of acquisitions involving ATL, Elscint, Imation, and Sterling have companies on edge as consolidation reaches into imaging's upper echelons. Who will be next is anyone's guess.