Varian Medical Systems To Unleash VREX- Varex Imaging Systems

It’s not surprising to see companies experienced with spinoffs go back to the same playbook, but Varian Medical System’s (VAR) upcoming Imaging Components spinoff is still a bit surprising. After all, it’s been 17 loooong years since Varian Associates broke itself into three different parts, including Varian Medical Systems.

The new business will be named Varex Imaging Systems and will be ‘a high-volume manufacturer of X-ray tubes, flat panel detectors, connectors and accessories for imaging as well as a supplier of workstations and software for computer-aided diagnostics and image processing’. The Varex name was chosen because it draws ‘from the 65-plus years of technology leadership and strong industry brand recognition of Varian and the excellence in X-ray imaging technology customers will continue to count on from the new company.’ I guess if you smash Varian and X-Ray together you end up with Varex? I guess they were a bit rusty after 17 years. The new company is expected to generate ~$575m in revenue and will be led by Varian Imaging’s President Sunny Sanyal. Varian Imaging’s Controller, Clarence Verhoef, will become the CFO.

The remaining Varian piece will continue concentrating on its core cancer business by ‘providing systems for treating and managing cancer, with distinct businesses in radiation oncology and proton therapy.’  The business generates ~$2.5b in revenue, a pretty impressive figure considering the company started with less than $6oom back in 1999. Fittingly CFO Elisha Finney, who became CFO after the first spin, will retire this year and a search is currently ongoing for replacement. Varian’s CEO Dow Wilson will remain ahead of the parent company.

According to Mr. Wilson, the spin ‘will give two fundamentally different businesses independence to optimize their strategies and operations to enhance their growth…the objectives and growth strategies of our imaging components and oncology businesses are now taking them in different directions.” Despite the spinoff generating dissynergies of $20m, Wilson believes that ‘the previous spin-offs created tremendous value’ so the next ‘spin-off has the potential to do the same’. As if he had anything to do with that. Both business’ revenues have been fairly flat and margins have been stable to declining. Given that and the fact the companies serve different markets and have different characteristics, maybe a spinoff actually is a good way to give each company a chance to try something new.

The new company is expected to trade under the ticker ‘VREX’ and is expected to be completed by the end of the year. Hopefully that means there will be an update in the very near future.

Disclosure: Author holds no position in any stock mentioned.