Kodak Considers Sale of Health GroupKodak Considers Sale of Health Group

Following its sixth successive quarterly loss, Eastman Kodak Co. (Rochester, NY) announced that it is exploring strategic alternatives for its $2.7 billion healthcare division, Kodak Health Group. First-quarter sales for the unit, which manufactures products including digital radiology equipment, medical printers, and x-ray film, were $585 million, down 7% from the year-ago period. Its operating profit declined from $78 million to $46 million.

Digital sales showed strength but were not enough to offset continuing declines in traditional radiology segments. However, sales of the company's digital printers were also down as hospitals show an increasing preference for viewing images on high-resolution monitors rather than printing them, which was the dominant practice until a relatively short time ago.

Kodak has engaged the services of Goldman, Sachs & Co. (New York City) as an adviser. Since Kodak made its announcement, Goldman has reported that it has received numerous offers from potential buyers of the Health Group, but declined to name any of the companies. Chief competitors include GE Healthcare ( Chalfont St Giles, UK) , Siemens Medical Solutions (Malvern, PA), Philips Medical Systems (Andover, MA,) and Agfa-Gevaert ( Mortsel, Belgium).

In a conference call with analysts, Kodak chairman and CEO Antonio M. Perez acknowledged that the sale of the health unit was an option, but he also cited the possibility that the company might pursue a partnership. “Our stated corporate goal is to be among the top three in each of the businesses in which we compete,” Perez said. “While the Health Group is enjoying strong organic growth in elements of its digital portfolio, such as digital capture solutions and healthcare information solutions, we have been observing for some time consolidation in this industry. Given our valuable assets and the changing market landscape, we feel that now is the time to investigate strategic alternatives.”

Health Group president Kevin Holbert said that Kodak could bring a great deal to a partnership. “We've been in the business 110 years—since the dawn of radiology,” he said. “We have a great product and technology portfolio and a large installed base of loyal customers who greatly value the Kodak brand.”

In Kodak's 2003 vision statement, Perez touted the Health Group as one of the company's three strategic pillars. Since 2000, growth initiatives have been buoyed by five acquisitions. And in spite of its current problems, the unit accounts for 20% of Kodak's revenues. For 2005, it ranked number 17 among the world's top 20 publicly held medtech firms, but it was one of only two in that group to report a decline in revenues from the previous year.

Analysts speculate that sale of the Health Group could bring as much as $4 billion and wipe out Kodak's current debt as it continues its digital transformation across all business units.

© 2006 Canon Communications LLC

Return to MX: Issues Update.