The long-anticipated future of Eastman Kodak Health Group has now been cleared up. Eastman Kodak has reached an agreement to sell the unit for up to $2.55 billion to Toronto-based Onex Healthcare Holdings, a subsidiary of Canadian investment firm Onex.
Kodak will receive $2.35 billion in cash at closing, plus up to $200 million in additional future payments based on earnings. If Onex Healthcare investors realize an internal rate of return greater than 25% of their investment, the Rochester, NY-based firm will receive payment equal to 25% of that excess return.
When Kodak initially set out to explore strategic alternatives for the Health Group in early 2006, this type of arrangement was exactly the outcome Kodak was hoping for, according to Health Group president Kevin Hobert.
"We were hoping that the group that saw the greatest value in us would be the group that shared our vision, that believes in what we have, that believes that we've got a business worth building and investing in, and that's just what we found with Onex," Hobert said.
Onex believes the Health Group has significant growth potential, said Onex managing director Robert Le Blanc.
The group will be the seventh healthcare company Onex has acquired in the last four years, Le Blanc said. Other healthcare companies in the Onex portfolio include ResCare, Emergency Medical Services, Skilled Healthcare Group, and imaging center chain Center for Diagnostic Imaging (CDI) of Minneapolis.
Onex bought CDI in 2005, paying $225 million for a company that operates 38 imaging centers, primarily in the midwestern U.S., but with a handful in Florida and Washington.
Following the deal, the Health Group will remain intact and will be run as its own unit with its own management team, independent of other Onex healthcare holdings, Le Blanc said. Approximately 8,100 Health Group employees will continue on with the business after the closing.
The deal includes manufacturing operations handling production of health imaging products, as well as an office building in Rochester, NY. Onex is also acquiring Kodak's nondestructive testing business as part of the agreement.
While the company will receive a new, yet-to-be-determined identity after the deal, the Health Group operations will continue to have access to the Kodak brand name in the healthcare space and all of its existing product trademarks, Hobert said.
As a standalone entity that will no longer need to compete for resources within a larger company, the Health Group is also likely to see an increase in research and development activities, Le Blanc said.
"There will be a larger emphasis on R&D and a larger emphasis on creating new products as we move forward," he said.
The new independence will also help foster a renewed growth culture within the group, Le Blanc said.
In addition to pursuing growth avenues in its digital business, Kodak will also continue to sell film, Hobert said.
"We'd love to convert every customer to our digital solutions, we'd love to help them improve their quality and cost of their care, but we would also love to provide film," he said. "It has a place in the industry and will for quite some time."
The Health Group had revenues of $2.54 billion in its last 12 reported months (through September 30). Subject to regulatory and other approvals, the transaction is expected to be completed in the first half of 2007.
By Erik L. Ridley
AuntMinnie.com staff writers
January 10, 2007
Related Reading
Kodak awarded Amerinet contract, January 10, 2007
Kodak adds to client list, January 9, 2007
Kodak sets target for info on Health Group status, December 27, 2006
Kodak upgrades OrthoView software in CareStream PACS, December 22, 2006
Kodak says to comment soon on health unit plans, December 21, 2006
Copyright © 2007 AuntMinnie.com
