At a meeting on Tuesday with investors and analysts in London, Netherlands-based Royal Philips announced the company plans to split into two, with one company combining its healthcare and consumer lifestyle divisions (to be called HealthTech) and the other focusing on lighting solutions.
Philips was previously organized around the three separate business lines: healthcare, consumer lifestyle, and lighting.
The HealthTech company would combine the healthcare and consumer lifestyle divisions to "capitalize on the convergence of professional healthcare and consumer end-markets across the health continuum, from healthy living and prevention to diagnosis, treatment, recovery, and home care," Philips stated in a press release.
Joost Akkermans, a spokesman for Philips in the Netherlands, told DrBicuspid.com via email that "Oral Healthcare [the department] is an important part of the combined offering. As we are now starting to work on setting up these two companies, we cannot comment beyond that at this stage."
"I do appreciate the magnitude of the decision we are taking, but the time is right to take the next strategic step for Philips, as we continue on our transformation," stated Frans van Houten, CEO of Royal Philips, in the release. "To become the global leader in HealthTech and shape the future of the industry, we will combine our vibrant Healthcare and Consumer Lifestyle businesses into one company."
In 2013, sales for Philips' combined HealthTech businesses was 15 billion euros ($19.2 billion U.S. at today's rate), compared with about half that for the lighting solutions group.
Philips cited the "rising engagement of consumers to proactively monitor and manage their health," and the "increasing pressures on the healthcare system to create new models of care" as drivers contributing to this decision.
Along with oral healthcare, Philips' new company has a leading position in healthcare informatics, ultrasound diagnostics, cardiac care, and home healthcare. The company estimates the "total addressable market" at more than 100 billion euros ($127.8 billion).
The company could positively influence healthcare, according to van Houte.
"Philips is uniquely positioned to help reshape and optimize population health management by leveraging big data and delivering care across the health continuum, from healthy living and prevention to diagnosis, minimally invasive treatment, recovery, and home care," van Houten continued. "The combination of our Healthcare and Consumer Lifestyle portfolios and the integration of the data from the connected products on Philips' cloud-based digital health platform illustrate our opportunity to capture growth in an increasingly connected world, where societies are looking for more effective and lower cost health solutions."
Each company will have a dedicated management structure, which would enable additional cost savings, according to Philips. The new operating structure enables additional cost savings resulting in 100 million euros ($127.8 million) additional savings in 2015 and a further 200 million euros ($255.64 million) in 2016. The company expects to incur approximately 50 million euros ($63.9 million) of additional annual restructuring costs from 2014 until 2016, the company noted.