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Kodak Bets on Digital, Sells its Health Imaging Division
AP Business Writer

Eastman Kodak Co. is selling its health-imaging business, created after the discovery of X-rays in 1895, to Canadian investment firm Onex Corp. for up to $2.55 billion as the picture-taking pioneer bets its future on digital photography and commercial printing.

Kodak said Wednesday it plans to pay down about $1.15 billion in debt and funnel the rest of the proceeds into unspecified digital ventures as profits from its storied film business rapidly erode.

"Getting rid of the health imaging unit is a positive - they've got another $1 billion that they can play with," said analyst Shannon Cross of Cross Research in Short Hills, N.J. However, "they still face the same challenges, and a huge chunk of their earnings was coming from health imaging."

Onex Healthcare Holdings Inc., a subsidiary of Canada's largest buyout firm, will pay $2.35 billion in cash and up to $200 million more if its investors realize an internal rate of return of more than 25 percent. The deal is expected to close in the first half of this year.

Toronto-based Onex Corp., which boasts annual revenues of about 20 billion Canadian dollars ($17 billion), teamed up on recent takeovers of Australia's Qantas Airways Ltd. and Raytheon's aircraft business.

Kodak founder George Eastman expanded photography's parameters to X-ray film in 1896 within months of German physicist Wilhelm Roentgen's discovery that X-rays would expose photographic plates.

The health group, which makes X-ray film, medical printers and information management software and storage systems and employs 8,100 people, accounted for nearly one-fifth of Kodak's $14.3 billion in sales in 2005. But the unit's operating profit plunged 21 percent that year as margins tightened.

With manufacturing operations in Rochester, Windsor, Colo., Oakdale, Minn. and White City, Ore., as well as Xiamen, China, Guadalajara, Mexico, and Berlin, it competes against such companies as General Electric Co., Germany's Siemens AG, Royal Philips Electronics NV of the Netherlands and Belgium's Agfa-Gevaert.

Kodak hired Goldman Sachs & Co. last May to help explore alternatives for the division. Analysts had expected it to be either sold outright for anywhere from $2 billion to $4 billion, dismantled and sold in pieces, or turned into a joint venture.

Aside from reducing debt, Kodak said other potential uses for the cash proceeds are under review and will be discussed at its annual meeting with investors Feb. 8 in New York City.

Kodak shares fell 35 cents, or 1.37 percent, to close at $25.28 on the New York Stock Exchange. They have traded in a 52-week range of $18.93 to $30.91.

As Kodak enters the final year in its historic, four-year digital makeover, it has piled up $2.6 billion in restructuring charges, accumulated $2 billion in net losses over the last eight quarters and axed 27,000 jobs. Even before shedding its health unit, its work force had dipped below 50,000 from a peak of 145,300 in 1988.

In the July-to-September quarter, Kodak's losses narrowed to $37 million as digital profits surged above $100 million. It posts fourth-quarter earnings on Jan. 31.


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