Philips to Buy Respironics for $5.2 Billion

On Dec. 21, Royal Philips Electronics NV, the world’s biggest manufacturer of patient-monitoring systems, said it would buy medical equipment maker Respironics Inc. for $5.2 billion in its largest-ever acquisition.

Philips will pay $66 a share in cash, the Amsterdam-based company said in a statement today. The offer is 24 percent higher than yesterday’s closing price. Respironics, based in Murrysville, Pennsylvania, makes masks and ventilators to use in patients’ homes for the treatment of breathing disorders.

The deal brings Philips’s spending on acquisition and share buybacks to more than 20 billion euros since 2005. Chief Executive Officer Gerard Kleisterlee is using proceeds from selling semiconductor holdings to bolster the medical and lighting divisions and return cash to investors. Philips, which competes with General Electric Co. and Siemens AG, forecasts operating profit per share will more than double by 2010.

“This is a sensible move,” said Rene Verhoef, an analyst at Fortis in Amsterdam. “It’s a clear step in home care, which is growing fast and the margins are high.” Verhoef recommends buying Philips stock.

More Takeovers

Philips will continue looking at possible takeovers, Kleisterlee said on a call with analysts today.

Respironics rose $12.37, or 23 percent, to $65.48 at 9:49 a.m. New York time in Nasdaq Stock Market trading. Before today, the shares had gained 41 percent this year, versus a 17 percent increase for the S&P 600 Health Care Index.

“We quite like the acquisition,” said Janardan Menon, a Dresdner Kleinwort analyst in London who recommends buying Philips stock. “The only thing we would question is why they didn’t do it earlier,” Menon said, citing the increased share price of Respironics.

The purchase values Respironics at 36.3 times profit for the past year, above the average price-earnings multiple of 27.7 for a group of 20 U.S. medical-device makers tracked by Bloomberg.

The takeover will lead to cost savings of $50 million by 2010, Philips said. The purchase will enhance sales by $180 million by 2012 as the companies will use each other’s distribution network to sell products, Chief Financial Officer Pierre-Jean Sivignon said on a call with reporters.

Source: Bloomberg