Koninklijke Philips Electronics NV (PHG) is set to acquire Discus Holdings Inc., a leading producer of professional tooth whitening products. The terms of the deal were not disclosed.

Apart from tooth whitening products, Discus’ product offering also includes oral care, restoratives, endodontics and soft-tissue lasers. Some of the leading brands of Discus’ tooth whitening products are Zoom®!, BriteSmile®, and NiteWhite®. Discus’ products are used by dentists in more than 100 countries. The merger with Philips will allow Discus to further enhance its product offering and also expand its presence geographically.

Subject to regulatory approvals, the merger is expected to be closed in the fourth quarter of 2010. Jefferies and Co. acted as advisor for Discus on the transaction and it was represented by Cooley LLP.

Philips’ Healthcare segment is the second largest manufacturer of medical diagnostic equipment, which includes X-ray, ultrasound, magnetic resonance, medical information technology (IT), nuclear medicine, patient monitoring, information management and resuscitation products, as well as a comprehensive range of services. The company also provides oral care products, its Sonicare® brand is the leading sonic toothbrush recommended by dental professionals worldwide.

The merger with Discus will further expand the company’s growth opportunity in the cosmetic dentistry industry and will also strengthen its position as a leading provider of oral healthcare brand to dentists and consumers.

Philips is actively restructuring its portfolio to better focus on healthcare, lighting and lifestyle markets with several recently focused acquisitions and divestments, which bodes well for the company going forward. In the second half of 2009, Philips acquired the assets of InnerCool Therapies Inc., a pioneer in the field of therapeutic hypothermia, a medical treatment that lowers a patient’s body temperature.

The company’s continued ability to increase cash flow by higher earnings, partially offset by lower inflow from working capital, has helped sustain investments in growth initiatives while maintaining a strong balance sheet.

However, Philips’ global presence exposes the company to regional and local regulatory rules, which may interfere with the realization of business opportunities and investments in the countries in which it operates. Philips’ overall performance in the coming years depends on realizing its growth ambitions in the emerging markets. Major competitors of Philips are General Electric Co. (GE), Panasonic Corporation (PC) and Sony Corporation (SNE).

Headquartered in Amsterdam, The Netherlands, Koninklijke Philips Electronics NV is one of the world’s largest electronics companies and the biggest in Europe, with sales of €26.4 billion in 2008 and €23.2 billion in full year 2009. The company is divided into five distinct business sectors after the sale of the semiconductor division: Healthcare, Consumer Lifestyle, Lighting, Innovative & Emerging Businesses (I&EB) and Philips Group Management & Services (GMS). Philips employs above 116,000 employees in more than 60 countries worldwide.

We currently maintain our Neutral rating for the long term on Philips, with a Zacks #2 Rank (short-term Buy recommendation) over the next one-to-three months.

 
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