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Onex buys Kodak's Health Group for $2.55 Billion
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Onex buys Kodak?s Health Group in deal worth up to $2.55 billion

By AMANDA PEDERSEN Diagnostics & Imaging Week Staff Writer

Eastman Kodak (Rochester, New York) will be able to sharpen its focus on consumer and professional imaging and the graphic communications industry now that it has signed an agreement to sell its Health Group to Onex Healthcare Holdings (Toronto), a subsidiary of Onex Corporation.

Kodak will sell its Health Group to Onex for up to $2.55 billion. The price is composed of $2.35 billion in cash at closing, plus up to $200 million in additional future payments if Onex achieves certain returns with respect to its investment. If Onex Healthcare investors realize an internal rate of return in excess of 25% on their investment, Kodak will receive payment equal to 25% of the excess return, up to $200 million.

In May ? on the heels of its sixth consecutive quarterly loss ? Kodak said it was exploring strategic alternatives for its Health Group, including the possible sell off of the business.

Robert Salmon, a spokesman for Kodak told Diagnostics & Imaging Week, that at the time of the May announcement the company had decided that ?in order to be truly successful and realize growth and really take the business to a whole [new level] would require an investment of resources it didn?t have.?

So, the company decided to sell its Health Group to Onex, which Salmon said has a track record of being able to develop and grow its business acquisitions. ?We joined forces with an organization that has the resources to grow the business,? he said. He said that with deal close the Health Group will operate as a stand-alone company.

The companies said the sale will close in the first half of this year.

Because of tax-loss carry forwards, Kodak expects to retain the vast majority of the initial $2.35 billion cash proceeds. The company plans to use the proceeds to fully repay its roughly $1.15 billion of secured term debt. Other potential uses of the cash proceeds are under review and will be discussed at Kodak?s investor meeting, scheduled for February 8.

Included in the sale are manufacturing operations focused on the production of health imaging products, as well as an office building in Rochester. About 8,100 employees of the Health Group will continue with the business following the closing.

Kodak said that Kevin Hobert, president of Kodak?s Health Group, would become CEO of the new Health Group entity.

?We have done extensive transition planning to ensure that, beginning on day one we will have the resources and a comprehensive plan to maintain our high level of service to customers,? he said. ?We have great products and a great team to support those products.?

Kodak?s Health Group ? with revenue of $2.54 billion for the last 12 reported months (through Sept. 30, 2006) ? develops information technology, molecular imaging systems, medical and dental imaging, including digital X-ray capture, medical printers, and X-ray film.

Kodak said the deal does include the area of the business that sells X-ray film and digital X-ray machines into the non-destructive testing market, the molecular imaging systems business, and the dental business.

Onex is one of Canada?s largest corporations,with annual revenues of about C$20 billion and consolidated assets of roughly C$20 billion. It has global operations in healthcare, service, manufacturing and technology industries. The healthcare operations include emergency care facilities and diagnostic imaging clinics.

?Kodak?s Health Group is a business with significant market presence and intellectual property assets,? said Antonio Perez, Kodak?s CEO and chairman. ?This sale maximizes shareholder value by obtaining a full and fair valuation for this business, and allows Kodak to increase its financial flexibility. We now plan to focus our attention on the significant digital growth opportunities within our businesses in consumer and professional imaging and graphic communications.?

The Health Group raised its prices on all medical imaging film and related supplies twice late last year, citing increasing costs of raw materials. But Perez said Onex has the financial resources to ensure its continued success. Onex, he said, ?understands the health industry.?

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