General Electric's Acquisition of Amersham Plc

27 Pages Posted: 21 Oct 2008

See all articles by Robert F. Bruner

Robert F. Bruner

University of Virginia - Darden School of Business

Paul J. Simko

University of Virginia - Darden School of Business

Mary Margaret Frank

University of Virginia - Darden School of Business

Marc Goldstein

Impact LLC

Abstract

In September 2003, the CEO of General Electric must evaluate a final proposal for it to acquire Amersham plc, the leading producer of contrast agents used in medical diagnostics. The case permits the valuation of Amersham based on peer firms, comparable transactions, and recent trading history. But the focus of analysis is on the robustness of Amersham's intellectual property (IP), which on examination is weaker than it first appeared, given recent patents filed by competitors.In September 2003, Jeffrey Immelt, CEO of General Electric, must evaluate a final proposal for GE to acquire Amersham plc, the leading producer of contrast agents used in medical diagnostics. The case permits the valuation of Amersham based on peer firms, comparable transactions, and recent trading history. But the focus of analysis is on the robustness of Amersham's intellectual property (IP). On close examination, the company's IP position is weaker than it appears, given recent patents filed by competitors. The economic impact of these IP challenges may be tested in the case of the company's leading product, Visipaque, for which the case gives cash flows. Discounted cash flow analysis reveals great sensitivity to the remaining years of effective patent life. A key lesson underscores the importance of due-diligence research on a firm's IP position.

Excerpt

UVA-F-1458

Rev. May 21, 2012

GENERAL ELECTRIC'S ACQUISITION OF AMERSHAM PLC

On September 25, 2003, Jeffrey R. Immelt, chairman and CEO of General Electric (GE), boarded his jet with some reading material—the final terms of a proposal to acquire Amersham plc for (U.S. dollars) USD9.5 billion in GE stock. At that time, Amersham was one of five global leaders in contrast agents used in medical diagnostics. It offered a potential fit with GE Medical Systems' imaging-equipment business.

By acquiring Amersham, the GE medical business would expand from equipment into contrast media—that is, from fixed assets into consumables. GE would gain Amersham's positions in radiotherapy, protein separations, and pharmaceutical-discovery systems. It would create a health-care group with more than USD13 billion in pro forma 2003 revenues, consisting of USD8 billion in imaging systems, USD2.6 billion in health-care IT, and USD2.7 billion from Amersham. It would also gain Amersham's patents, including key holdings in diagnostic chemistry, many of them obtained by Amersham itself through mergers and acquisitions.

As the world population aged and per capita demand for health care increased, GE aimed to work with Amersham to take a leadership role in molecular imaging and personalized medicine, widely viewed as the next major wave in health care. This was part of Immelt's strategy of pursuing the “innovation imperative,” the need to develop innovative, differentiated products and services in order to compete.

. . .

Keywords: merger acquisition, patent, intellectual capital, intellectual property, valuation

Suggested Citation

Bruner, Robert F. and Simko, Paul and Frank, Mary Margaret and Goldstein, Marc, General Electric's Acquisition of Amersham Plc. Darden Case No. UVA-F-1458, Available at SSRN: https://ssrn.com/abstract=909894

Robert F. Bruner (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-3823 (Phone)
434-924-0714 (Fax)

HOME PAGE: http://faculty.darden.edu/brunerb/

Paul Simko

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-1391 (Phone)

HOME PAGE: http://www.darden.virginia.edu/faculty/simko.htm

Mary Margaret Frank

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4432 (Phone)
434-243-5021 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/frank.htm

Marc Goldstein

Impact LLC ( email )

434-953-9929 (Phone)

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