FRANKFURT (Reuters) - German engineering group Siemens plans to sell its hospital IT business to Cerner Corp, a U.S. provider of healthcare IT services, for $1.3 billion in cash, the two companies said late on Tuesday.
The deal comes as Siemens Chief Executive Joe Kaeser seeks to focus the group, Germany’s second-biggest company by market value, on its most promising businesses to close a gap with more profitable competitors such as Switzerland’s ABB and U.S.-based General Electric.
Siemens said it was selling its hospital information system business, which has about $1.2 billion of annual sales and around 5,000 client facilities in over 40 countries, because it failed to consistently keep up with competitors.
“Additionally, an increasing number of country-specific requirements, such as (those) resulting from U.S. healthcare reform, make it increasingly challenging to achieve sufficient scale effects,” Hermann Requardt, CEO of Siemens’s Healthcare division, said in a statement.
Instead, Siemens said it would focus its efforts in the healthcare IT area on the development of systems for its laboratory diagnostics as well as imaging and therapy businesses.
Siemens, whose products range from gas turbines to high-speed trains and industrial automation software, has sold or spun off a raft of assets over the past couple of years, including its light bulb making business Osram and parts of its water technology business. This month, it agreed to sell its clinical microbiology business to Beckman Coulter, a subsidiary of Danaher Corp.
At the same time, it has bought some businesses, such as a turbines business from Rolls-Royce, to bolster its energy and industrials divisions. In June, it lost out in a bidding war for Alstom’s energy assets that would have seen it buy the French peer’s gas turbines business for 4.3 billion euros in cash.
Cerner said a combination of Siemens’s hospital IT business with its own operations would create an entity with $4.5 billion of annual revenue and $650 million of annual investments in research and development.
Siemens and Cerner also agreed on a strategic alliance to jointly invest in projects integrating health IT with medical technologies, each contributing up to $50 million.
Cerner said it expected the purchase of Siemens’s assets, which it will finance with cash on hand, to add 15 cents to its adjusted per-share earnings in 2015.
JP Morgan advised Siemens on the deal, while Cerner was advised by Greenhill & Co. The transaction is expected to close in the first quarter of 2015.
Reporting by Maria Sheahan; Additional reporting by Rohit T. K. in Bangalore; Editing by Sriraj Kalluvila, Victoria Bryan and Bernard Orr