KKR Takes An 80% Stake In Panasonic Healthcare
Espicom View : Panasonic has farmed out its Healthcare business in order to generate cash flow to improve its current operations. The company is still keeping a hold of the business with a 20% share, however, it has handed over the reins to a company that has experience in the healthcare sector. Panasonic Healthcare has excellent potential for growth and KKR should be able to maximise this. Once Panasonic Healthcare has been overhauled to improve its performance, it is possible that Panasonic will reclaim ownership of its business unit. As other technology giants, such as Philips, Siemens, Canon and Olympus turn to their healthcare portfolios to revive flat sales from the consumer segment, Panasonic has taken a different route. Perhaps using another company to improve performance will increase Panasonic Healthcare's standing in the market.
Panasonic and Kohlberg Kravis Roberts & Co (KKR) have signed a share purchase and a shareholders' agreement under which Panasonic and KKR will become joint partners of Panasonic Healthcare. The prospect of Panasonic Healthcare being sold was first raised in March 2013, when Panasonic released its strategy, which stated that the company planned to inject external capital into the healthcare field.
Panasonic Healthcare is a comprehensive healthcare company that focuses on three core businesses: In Vitro Diagnostics, Medicom, and Biomedical. The In Vitro Diagnostics business has a leading global market share in the manufacture and sale of blood glucose monitoring meters and sensors. Its Medicom business has the top share in Japan in medical receipt computers, electronic health record systems and other IT equipment for medical clinics, while its Biomedical business has a leading market share in Japan and overseas in biomedical laboratory equipment including CO 2 incubators and ultra-low temperature freezers.
Based on the current agreements, PHC Holdings Co (PHCHD), which is wholly-owned by KKR investment funds, will purchase all outstanding shares of Panasonic Healthcare, including its related intellectual property and assets, for an equity value of approximately JPY 165bn (approximately US$1.67bn). The transaction will be followed by a third party share allocation by PHCHD, after which KKR will own 80% of outstanding shares of PHCHD and Panasonic will own 20%. Panasonic and KKR will co-operate in the management of Panasonic Healthcare. The transaction is expected to close in March 2014.
Panasonic and KKR will leverage their respective business resources, including healthcare industry knowledge, technology and specialist expertise, as well as global healthcare industry investment experience, and network together to aim for further growth of Panasonic Healthcare. The company aims to accelerate growth by building out its global sales channels to major overseas healthcare facilities, aided by KKR's overseas network, and deliver an enhanced range of products and services to customers around the world. Through its partnership, Panasonic will work with KKR to support the growth of Panasonic Healthcare, which will continue to be a member of the Panasonic Group. At the same time, the company believes that partnering with KKR will also allow Panasonic to learn from KKR's global operational and business management expertise as it pursues the next stage in growth for Panasonic.
PHC was established in 1969 under the name of Matsushita Kotobuki Electronics Industries, and engaged in the electric and electronic device business. In 2005, with the aim of enhancing the global marketing power and brand value of the Panasonic Group, PHC changed its tradename to Panasonic Shikoku Electronics. Subsequently, in October 2010, PHC decided to focus on the healthcare business, and it changed its tradename to Panasonic Healthcare. In April 2012, with the intention of achieving further growth in the healthcare business and the strengthening of its management culture, Panasonic acquired the Medicom business from Sanyo, which concerns medical IT solutions, and the Biomedica business, which concerns life science devices, through an absorption-type corporate split with Sanyo Electric Co.
Panasonic stated that Panasonic Healthcare has been steadily recording profits, and that in order to ensure future growth, additional investment and the introduction of knowledge in the medical field are needed. In FY13 (year ended March 31 2013), net sales for the business unit totalled JPY 98,068mn, a 68.6% increase over the previous year. Operating income also experienced a large increase, up by 317.9% to JPY 7,973mn. Net income followed this trend as well, recording a profit of JPY 1,315mn in FY13, compared with a loss of JPY 3,207mn in FY12. Currently, Panasonic Healthcare only accounts for approximately 1% of Panasonic's total revenue. With the expertise of a company that has had more experience in the medical field, the healthcare unit might be able to improve sales even further. Panasonic Group revenues fell by JPY 543,171mn in FY13, and nets loss improved slightly, but was still massive at JPY 754,250mn.
KKR raised around US$6bn to use for investment in Asia. This will be KKR's only investment in Japan currently. It previously made an investment in a staffing firm but sold it a short while after. KKR has over ten companies present in its investment portfolio, including Jazz Pharmaceuticals, Accellent and Biomet, which is currently rumoured to be sold by the investment group that KKR is a part of. With experience in the healthcare market, KKR should be able to capitalise this to ensure growth for Panasonic Healthcare.