Tokyo : Canon, Fujifilm Holdings and Konica Minolta have entered the second and effectively final round of bidding for Toshiba Medical Systems, seeking a stronger foothold in the growing medical industry.
According to Nikei Asian Review, the wholly owned Toshiba subsidiary is the world’s second-largest seller of computed-tomography equipment, with annual consolidated sales totaling about 400 billion yen ($3.5 billion). It is expected to sell for around 700 billion yen.
Canon and Fujifilm tendered bids on their own, while Konica Minolta partnered with U.K. investment fund Permira. Konica Minolta apparently made a lower offer than in late January, having taken profitability into account. Toshiba will pick a winner as early as next week.
A coalition including Japanese trading house Mitsui & Co. and U.S. fund Kohlberg Kravis Roberts chose not to participate despite passing the first round of bidding. Toshiba had asked that the bidder granted preferential negotiating rights pay about 20% of the offer upfront, to be kept even if talks broke down, trying to encourage only serious bids. Mitsui and KKR apparently found this condition unacceptable.
Toshiba will focus on bid size when making its choice and is willing to unload its entire stake. A 700 billion yen acquisition price would put Toshiba Medical’s ratio of enterprise value to earnings before interest, taxes, depreciation and amortization — a metric showing how long it would take to recoup the investment using the acquisition target’s profits — at about 25. Medical companies typically fall in the 15-20 range.
The global market for medical devices is expected to swell from nearly 40 trillion yen in 2013 to more than 50 trillion yen in 2018 as populations age. The battle for this growth market is starting to overheat.
The three finalists have used image-processing and -analysis technology cultivated in such fields as cameras to break into the medical industry. By purchasing Toshiba Medical, they aim to fortify their positions while creating technological synergies.
Canon’s medical equipment operations focus on retinal cameras. It has also developed ultrasound imaging equipment that can test for breast cancer painlessly, though this business is still small. The company aims to boost medical device sales to 100 billion yen a year by 2020. Executive Vice President Toshizo Tanaka has called Toshiba Medical a “once-in-a-lifetime opportunity.”
Of the finalists, Fujifilm has the strongest position in the medical field, ranking first in Japan and second in the world in imaging systems for diagnosis and treatment used at hospitals. It has used acquisitions to build up its health care business, which now logs annual sales of 400 billion yen. Buying Toshiba Medical would bring sales close to its 1 trillion yen target.
Konica Minolta holds a large share of the market for digital X-ray systems. From a sales standpoint, its strength in small and midsize hospitals would likely complement Toshiba Medical’s edge in larger facilities.