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Respironics is sold to Dutch firm

Respironics is sold to Dutch firm

'Impact should be minimal,' buyer says

Executives involved in the $5.1 billion sale of Murrysville medical equipment maker Respironics Inc. to Dutch conglomerate Royal Philips Electronics offered assurances yesterday that new ownership would not result in dramatic changes to the local 1,700-person workforce, executive team or corporate focus.

"We believe the impact should be minimal," said Steve Rusckowski, chief executive officer of Philips's health care division, Philips Healthcare.

Respironics Chief Executive Officer John Miclot will remain as CEO of the newly created Philips Home Healthcare Solutions division, based in Murrysville, as will all Respironics group presidents, Mr. Miclot said. Work also will continue on the company's new $32 million manufacturing plant seven miles from Respironics' headquarters. And Mr. Rusckowski said "there are no plans for a substantial reduction in workforce because the business is complimentary to what we do."

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Added Mr. Miclot: "Our intention is to keep the heritage of a great company and grow it as we always have."

But one missing component is Respironics' founder and Chairman Gerald McGinnis, a former president and CEO for 18 years and a fixture since the company's founding in 1976. Mr. McGinnis, 73, will not will not be part of the new enterprise, Mr. Rusckowski said; at the same time, if Philips' acquisition is approved by regulatory agencies and shareholders, Mr. McGinnis stands to gain tens of millions.

An Oct. 16 document filed with the Securities and Exchange Commission shows Mr. McGinnis controling 1.1 million shares, or 1.5 percent of the shares outstanding. At Philips' price of $66 a share -- a 24 percent premium to the Respironics's closing price Thursday, before the deal was announced -- Mr. McGinnis' stake is worth $73 million. Another board member who stands to gain is Respironics' vice chairman James Liken, who owns 141,383 shares, according to Respironics' Oct. 16 document, or $9 million based on the Philips' offering.

As for Mr. McGinnis, "they made him an offer he couldn't refuse," said Mel Pirchesky, president of Shadyside corporate turnaround and venture capital firm Eagle Ventures. Mr. McGinnis is a partner in Eagle Ventures and has invested with Mr. Pirchesky in a number of local companies. "Sixty-six bucks [is[ four times revenues," he added. "That's a pretty good multiple for a company. Actually, a very high multiple for a company. I can see why they would sell." Respironics "is a Pittsburgh company and will always be a Pittsburgh company. It would take something extraordinary for them to want to sell."

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Corporate officials said Mr. McGinnis was in Florida yesterday. He could not be reached for comment.

Respironics had about $1.2 billion in sales over the year that ended Sept. 30, with 70 percent of sales from its sleep and home-respiratory business. Its devices help diagnose or treat sleep breathing problems, notably a sleep apnea disorder that affects 18-20 million Americans. On the news of a sale, Respironics' share price shot up almost 23 percent yesterday, to $65.32.

The proposed acquirer, Royal Philips Electronics, is a light bulb and consumer electronics giant based in the Netherlands, employing 128,000 people in more than 60 countries. Its $10 billion, 32,000-person medical arm, one of the world's largest medical equipment makers, is in the midst of a buying binge: last Tuesday, before announcing the Respironics deal, it unveiled a $430 million buy of a Baltimore maker of online monitors for intensive care patients. In October it bought a Connecticut maker of home heart monitors and last June it disclosed a $1.4 billion bid for a New York maker of magnets used in medical imaging devices. Other home health care acquisitions include Lifeline Systems, Health Watch and Rayel Cardiac Services -- all of which will be part of the new Philips Home Healthcare Solutions group headquartered in Murrysville if the acquisition closes.

Philips also has a relationship locally with the University of Pittsburgh Medical Center, the region's largest hospital network. In 2005, Philips paid $280 million to buy Stentor Inc., a California company created by UPMC to commercialize hospital systems for digital X-rays and other radiology images. UPMC realized a gain of $36 million.

Philips' interest in Pittsburgh's medical industry and the value placed on Respironics highlight the strength of that sector locally, said Mr. Pirchesky, of Eagle Ventures. Respironics "started from nothing; one guy and an idea ... it says an awful lot that our region can produce that kind of an opportunity."

First Published: December 22, 2007, 5:00 a.m.

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