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Philips Calling It Splits

In an apparent effort to bolster its sagging healthcare business, Dutch electronics giant Philips will split the company in two.

At a meeting with investors and analysts in London, Philips announced it would separate its healthcare and lighting businesses, with the possibility of spinning off the new lighting company with an IPO by 2016, according to an article in the Wall Street Journal.

The company intends to combine its existing healthcare and consumer lifestyle businesses into one entity known as HealthTech, the company said in a statement.

This combination will allow Philips "to capitalize on the convergence of professional health care and consumer end-markets across the health continuum, from healthy living and prevention to diagnosis, treatment, recovery and home care," the statement said.

Investors hailed the split, boostingPhilips by 3% in early trading on the New York Stock Exchange.That's positive news for the company's healthcare division, whose total revenue slid more than 50% in the most recent quarter when compared with the same quarter of 2013, Qmed reported.  Philips recently had its "underperform" rating reaffirmed by Zacks. Early in the summer, Philips announced that its top health care executive Deborah DiSanzo had left the company amid the disappointing earnings results, according to The Wall Street Journal.

"I do appreciate the magnitude of the decision we are taking, but the time is right to take the next strategic step for Philips, as we continue on our transformation," Philips CEO Frans van Houten said in the company's statement. "Both companies will be able to make the appropriate investments to boost growth and drive profitability, ultimately generating significantly more value for our customers, employees and shareholders."

As a result of the changes, Philips said it expects to save a total of 300 million euros, or about $385 million, by 2016, but expects to incur restructuring charges of about EUR50 million or $64 million over the same time period.

Philips has the seventh largest medtech business in the world, with nearly $14 billion in annual sales, according to Qmed's sister publication MD+DI.

Refresh your medical device industry knowledge at MD&M Chicago, October 15-16, 2014, and MD&M Minneapolis, October 29-30, 2014.

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Nancy Crotti is a contributor to Qmed and MPMN.

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