Daily Management Review

Toshiba to sell off its Medical Equipment Unit to Canon for $5.9 Billion


Toshiba to sell off its Medical Equipment Unit to Canon for $5.9 Billion
As the world’s biggest maker of cameras seeks new growth, Canon Inc. has agreed to buy Toshiba Corp.’s medical equipment unit for 665.5 billion yen ($5.9 billion).
Tokyo-based Canon said in a statement Thursday that the deal will be funded by existing cash and borrowings a day earlier, unsuccessful bidder Fujifilm Holdings Corp. had questioned Toshiba about the sale
Toshiba is seeking to revive profits by narrowing the scope of its business lines. The company’s product profile ranges from nuclear power equipment to laptop computers, flash memory chips and home appliances. Facing record losses, job cuts and potential spinoffs, an accounting scandal has left the Japanese conglomerate in tatters.
A business that makes diagnostic imaging systems such as MRI, X-ray and ultrasound equipment is being bought by Canon. This deal would elevate the company to fight on equal footing with companies like General Electric Co., Royal Philips NV and Siemens AG for MRI machines which typically cost more than $100,000 each.
As smartphones with increasingly advanced cameras eat into its business, Canon has been forced to diversify. While its existing health-care business includes radiography and ophthalmic equipment, the company also makes printers, fax machines and projectors, according to its website.
“There is no reason to believe that the selection process wasn’t fair and that Canon is paying an unfairly low price,” said Damian Thong, an analyst at Macquarie Group Ltd. in Tokyo.
According to data compiled by Bloomberg, with total debt of 1.6 billion yen, Canon had 654 billion yen of cash and equivalents as of Dec. 31.
Citing the length of time usually needed to clear antitrust scrutiny, on Thursday, Fujifilm disclosed that it had cast doubt Toshiba’s plan to complete the deal by the end of the fiscal year this month and had asked Toshiba a day earlier to explain how it decided to enter exclusive negotiations with Canon.
While the statement had urged Toshiba to respond by 3 p.m. in Tokyo on Thursday, Toshiba announced that it reached an agreement with Canon instead.
“We are left with an impression that the deal went through a process that was exceedingly tricky and aimed at buying time. If this is to be accepted, this raises concerns that competition laws are just a facade,” Takao Aoki, a spokesman for Fujifilm, said after the announcement.
In order to deal with the fallout from the accounting scandal, Toshiba is seeking to raise money.  Passing over Fujifilm, exclusive negotiation rights were granted by Toshiba to Cannon on March 9. Earlier another bid by a group led by Konica Minolta Inc.it was rejected after it offered less than was being sought.
As the company forecast a record loss for the fiscal year, divesting the medical unit, job cuts and consideration of a reorganization of its personal-computer and TV operations are being made by Masashi Muromachi, Toshiba’s president.
There were sales of 409.5 billion yen in the previous fiscal year ending March 2015 and operating income of 23.9 billion yen in Toshiba’s health-care division, which includes medical equipment and other businesses that Toshiba doesn’t plan to sell, says Bloomberg.

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