Philips expands in medical devices with $1.2 billion Volcano deal

By Thomas Escritt

AMSTERDAM (Reuters) - Philips (PHG.AS) has agreed to acquire U.S.-based medical device maker Volcano Corp (VOLC.O) for $1.2 billion (£763 million) including debt, its largest healthcare acquisition in seven years and a bid to cash in on an ageing 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 ageing 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.

Philips is a leading maker of the X-ray machines that 'map' patients' bodies as surgeons insert the catheters.

Volcano would also give Philips a closer relationship to customers, Van Houten said.

"We typically sell a catheter lab to a hospital and it sits there for the next 10 years and we don't visit the cardiologist on a daily basis. Volcano have a disposable business. They are in the cath lab on a daily basis," he said.

The deal is Philips' largest since the $5.1 billion acquisition of sleep apnea treatment company Respironics in 2007.

(Additional reporting by Supriya Kurane in Bengaluru; Editing by Gopakumar Warrier and Clara Ferreira Marques)