Cerner Corp. (CERN) agreed to buy Siemens AG (SIE)’s health information technology unit for $1.3 billion as the U.S. electronic medical records provider plans to tap rising spending on software by hospitals and doctors.
The two companies plan a “strategic alliance” around medical devices, imaging and health-care technology, they said yesterday in a statement. The purchase is expected to add more than 15 cents to earnings per share in 2015, Kansas City-based Cerner said.
The Obama administration has paid doctors and hospitals about $25 billion to install the systems since 2011, trying to improve the efficiency and safety of health care. Siemens had been exploring the sale of its hospital information unit to focus on energy and industrial businesses, two people familiar with the plans told Bloomberg News last month. Cerner is the fourth-leading supplier of electronic records systems to U.S. hospitals, according to Software Advice, an Austin, Texas, consulting firm.
“We believe this is an all-win situation for the clients of both organizations and all of our associates and shareholders,” Neal Patterson, Cerner’s chairman and chief executive officer, said in the statement.
The health-care division of Munich-based Siemens had the highest profit margin of the company’s four businesses in 2013, according to data compiled by Bloomberg. Siemens CEO Joe Kaeser has sought to spin off parts of the health unit and focus the rest of the company on “electrification, digitalization and automation.”
Siemens stock declined 1 percent, or 90 cents, to 89.22 euros, the lowest in almost five months, at 12:16 p.m. in Frankfurt. That extended the decline this year to 10 percent, valuing the company at 78.6 billion euros ($105 billion).
“The sums involved are not enormous, but investors should not underestimate the strategic significance,” London-based Morgan Stanley analyst Ben Uglow wrote in a note to investors, reiterating his equal-weight rating on the shares. “CEO Kaeser is addressing businesses previously deemed ‘sacred’ within the company.”
Danaher Corp. (DHR)’s Beckman Coulter last month agreed to buy Siemens’s clinical microbiology business in a deal expected to close in the first quarter of 2015. While no terms were disclosed, Siemens said July 31 it didn’t expect any material profit from the sale. Siemens divested eight businesses last year, the most of any European industrial company, according to Bloomberg Intelligence data.
Combined with Siemens’s health IT unit, Cerner said it expects annual sales of $4.5 billion, about $1.6 billion more than in 2013. Research and development expenditures will be about $650 million annually, Cerner said, about $311 million more than in 2013, according to data compiled by Bloomberg.
“We realized that business success of our hospital information systems could not always keep pace with our competition,” Hermann Requardt, the head of Siemens’s health-care operations, said in a statement. “An increasing number of country-specific re-quirements, such as resulting from US healthcare reform, make it increasingly challenging to achieve sufficient scale effects.”
Cerner said it will continue to support an electronic records system developed by Siemens for at least a decade. Under the strategic alliance, each company will contribute as much as $50 million over three years toward “projects of shared importance,” Cerner said.
The electronic health records business in the U.S. is led by closely held Epic Systems Corp. of Verona, Wisconsin, which supplies about 19 percent of hospitals and 20 percent of doctors’ offices that have declared themselves to be “meaningful users” of the systems, according to data from the Centers for Medicare and Medicaid Services analyzed by Software Advice. Cerner supplies about 9 percent of U.S. hospitals.
Greenhill & Co. is acting as Cerner’s financial adviser and Latham & Watkins LLP is legal counsel. JPMorgan Chase & Co. is acting as financial adviser to Siemens and Clifford Chance LLP is its legal adviser.