Raytel weighs imaging future in face of center consolidation

Company may sell off seven imaging centers

Raytel Medical is examining whether it wants to continue participating in the imaging services business. The company last week reported that it has retained financial services adviser Dillon Read & Co. of New York City to help it "evaluate options for the future of its diagnostic imaging business."

Raytel, of San Mateo, CA, said its options for medical imaging included either pouring new capital into the business or selling it off. In recent months, Raytel's medical imaging business has taken a back seat to its activities in cardiology, where the company is developing a network of heart centers that offer cardiology services to hospitals.

Raytel entered the imaging services business in 1989, when it bought CDI Medical Systems. Raytel became a major player in the market in 1991, when it acquired Medical Imaging Partners, an 11-center network owned by Merrill Lynch and a group of private investors.

Raytel appeared ready to grow its imaging franchise in late 1994, when it launched a hostile tender offer for Medical Diagnostics of Burlington, MA (SCAN 12/14/94). At the time, Raytel said it wanted to catch the growing wave of imaging center consolidation. Those plans were dashed, however, when Advanced NMR of Wilmington, DE, arrived on the scene to acquire MDI in a white-knight rescue. Advanced NMR later sold off MDI to U.S. Diagnostic in a deal that was completed in March (SCAN 3/5/97).

Since the MDI bid, Raytel's center network has shrunk and now stands at seven facilities, located in California, New York, New Jersey, and Pennsylvania, according to CFO Payson Smith. The imaging services business is profitable, Smith said.

With center ownership in the imaging services industry growing more concentrated, however, Raytel apparently has realized that it must either grow so it can compete with the big boys, or get out of the business altogether.

"Although our diagnostic imaging business is performing well, we are at a point where we must decide whether to invest capital in the business in order to grow it, or sell the business to focus on our long-term heart-center growth strategy," said Richard Bader, chairman and CEO. "At this time, we are exploring all possible alternatives."