Philips expands in medical devices with $1.2b Volcano deal

Philips has agreed to acquire US-based medical device maker Volcano Corp for $1.2 billion including debt, its largest healthcare acquisition in seven years and a bid to cash in on an aging population's need for more complex treatments.

Philips said the acquisition of Volcano -- which makes equipment that allows doctors treating heart disease to see inside patients' veins and measure blood flow -- would lead to synergies in research and development and in sales. The deal is expected to add to Philips' earnings per share by 2017.

But at $18 per Volcano share, a premium of 57 percent to its Tuesday closing price, Wednesday's deal worried some investors, sending Philips stock 3.3 percent lower in morning trade.

"Philips is doing a rather expensive acquisition," said Rabobank analyst Hans Slob in a note, adding that the acquisition made strategic sense in the long term.

Philips, until recently a diversified conglomerate that made everything from televisions to lightbulbs to X-ray machines, is spinning off its historic lighting division to focus on its higher-margin healthcare business.

"In an aging world with more chronic disease, health and healthcare are enormous opportunities that we want to focus on," said Chief Executive Frans van Houten.

He told Reuters the price was "very acceptable" for a research-intensive market leader that would strengthen Philips's position in non-invasive surgery, a field likely to benefit as national healthcare budgets come under increased strain.

"Minimally invasive surgery is the way forward: the patient goes home the next day; there are fewer complications," he said.

Philips expects to see growth in the portion of healthcare spending allocated to technology, now only 5 percent of budgets, far behind staff and pharmaceutical costs.

Volcano makes catheters that can slide into veins to make ultrasound scans of the interiors of blood vessels, allowing doctors to treat without putting patients under the knife.