This article is provided to FT.com readers by mergermarket—a news service focused on providing actionable, origination intelligence to M&A professionals. www.mergermarket.com
--------------------------------------------------------------------------------------------------------

Agfa-Gevaert has held talks with Siemens and Heidelberger with a view to selling divisions during its strategic review process, according to a source familiar with the situation.

At the same time, US private equity group Gores is still interested in acquiring Agfa-Gevaert’s healthcare division, managing director Ashley Abdo said.

Agfa Graphics, Agfa Healthcare and Agfa Materials are reportedly on the block after Agfa appointed Lazard to study all strategic options for the company in April.

The source familiar with the situation said the Belgian-listed imaging company had been in discussions to sell its graphics division to Heidelberg. Agfa Gevaert’s healthcare operations have attracted the interest of listed German electronics group Siemens, the source added.

However, Heidelberger’s chief executive officer Bernhard Schreier said the German printing group is not interested in acquiring the division at present, despite having looked at it. Schreier declined to comment further.

Siemens and Agfa-Gevaert both declined to comment.

Agfa-Gevaert’s graphics division realised 2007 net sales of EUR 1.6bn and an operating result of EUR 27m post restructuring expenses for a margin of 1.7%. That year, Healthcare saw net sales of EUR 1.4bn and an operating result of EUR 106m before restructuring expenses for a margin of 4.8%.

Gores’ interest is limited to the healthcare division and does not extend to Agfa-Gevaert as a whole, contrary to claims in a media report, Abdo said. Gores will largely rely on its in-house financial and legal teams, but will turn to external legal advisors where appropriate, he added.

If successful in acquiring the division, Gores is likely to leave management of the healthcare operations in place, Abdo said. The PE group played an active role in managing listed Belgian computer company RealDolmen [formerly RealSoftware], where Abdo is CEO. Abdo said Gores does not envision such a role in Agfa’s healthcare unit.

Meanwhile, Gores’ potential bid for Agfa-Gevaert’s healthcare division faces opposition by organised labour, Belgian trade union sources said.

Gores’ managing director Ashley Abdo struck a conciliatory note on organised labour, but said restructuring would result in some job losses in the short term.

At the same time, sector bankers differed on the likelihood of an Agfa-Gevaert break-up or sale, with one banker pointing out that the Belgian imaging group’s pension shortfall and political sensitivities linked to trade union opposition could be hurdles for a deal.

However, Abdo argued a bid from the US private equity group would also provide Agfa-Gevaert with much-needed cash to cover its pensions gap.

According to an earlier news report, Agfa-Gevaert has uncovered pension costs of EUR 0.5bn, which prompted the group’s earlier decision to not transform itself into three separate listed companies.

An Agfa-Gevaert spokesperson said the group is in talks with various parties regarding its different activities, but declined further comment.

Two trade union sources expressed opposition to a sale of Agfa-Gevaert to a financial player such as Gores, in whole or in part. Organised labour does not oppose a sale as such, but would prefer an industrial buyer with an understanding of the imaging sector, both sources said. Both expressed concern over possible job losses, particularly in Agfa Materials.

The second trade union source said a break-up of the company is unlikely given the difficulties inherent in distributing the pension shortfall between the constituent divisions. At the same time, the formal power of organised labour is limited, with works councils having only a consultative role, the second source added.

A sector banker nonetheless emphasised that the trade unions could complicate any M&A activity, given the importance of Belgian politics in organised labour. Furthermore, job losses at Agfa-Gevaert would be highly visible at a time when unemployment is a central topic in public discourse. In addition, the Agfa brand is an object of national pride in the Belgian context, the third banker said.

On Agfa-Gevaert’s pension deficit, Abdo said Gores’ acquisition of Agfa Healthcare would provide the Mortsel-based group with the cash required to solve part of the problem.

Asked if Gores would consider taking on part of the pension shortfall as part of the transaction, Abdo said this option would have to translate into a discount on the purchase price.

Abdo said a restructuring of Agfa Healthcare would inevitably result in some “uncomfortable actions” in the short term. However, he said such job losses would be limited in scope and would result in long-term employment creation.

Abdo disputed the trade union sources’ characterisation of Gores as purely a financial player. The private equity group’s holdings include imaging assets in the US, inter alia. This “makes us more of a strategic buyer,” Abdo said. Abdo also said that Gores would cooperate with organised labour in the event of a purchase.

Sector bankers offered different readings of Agfa-Gevaert takeover prospects.

One sector banker said a takeover or breakup of Agfa-Gevaert is very likely. He highlighted the company’s low share price as a factor making it an attractive target. At the same time, its pension shortfall could complicate such a process, the sector banker argued. In addition, the group’s low share price may translate into offers being made that are unsatisfactory from the perspective of shareholders, the banker said.

Another sector banker said a breakup of Agfa-Gevaert is likely, given the conglomerate-like structure of the Belgian group.

The first sector banker sounded a cautionary note. In addition to such factors as trade union opposition, the signals emanating from Agfa-Gevaert have hinted that management may be reluctant to pursue a sale at all, the first sector banker said.

--------------------------------------------------------------------------------------------------------

For more information or to inquire about a trial please email sales@mergermarket.com or call EMEA: + 44 (0)20 7059 6105 Americas: +1 212 686-5277 Asia-Pacific: +852 2158 9730