Agilent Launches Extreme Makeover
The goal behind the moves is to cut costs and reduce Agilent to its core test-and-measurement business, primarily so its stock will stop trading like a "sluggish semiconductor company," CFO Adrian Dillon told analysts on a conference call this morning.
The changes also set the stage for the tenure of CEO William Sullivan, who took over from the retiring Ned Barnholt in March (see Agilent Names New CEO). The moves, announced with Agilent's third-quarter results, are headlined by the $2.66 billion sale of the semiconductor business to Kohlberg Kravis Roberts & Co. and Silver Lake Partners, news that broke late last week (see Report: Agilent Ditching Chips). The semiconductor unit includes optical transceivers for enterprise and telecom networking.
Agilent is also selling its interest in Lumileds, a joint venture in LED lighting, to partner Royal Philips Electronics N.V. (NYSE: PHG; Amsterdam: PHI) for $950 million plus a $50 million repayment of debt. Philips and Hewlett-Packard Co. (NYSE: HPQ) had begun the joint venture before Agilent spun off from HP.
Agilent expects to complete the divestitures before its fiscal year-end on Oct. 31.
And there's more. Agilent is spinning off its test businesses for systems-on-chip and flash memory. These businesses represented about $117 million of the $192 million in revenues from Agilent's automated test group last quarter, officials said.
All told, Agilent will shed about 9,400 of its 28,000 employees. Of those, 8,000 will go with the sold and spun-off businesses, while another 1,300 will be cut during the next year as Agilent tries to slim down the infrastructure of the remaining company, making changes that could save $450 million per year. Some of the 1,300 will get moved to the divested businesses, Dillon said.
The cash from the business sales will be returned to shareholders via a $4 billion stock repurchase program, which begins immediately.
Agilent stock was up $3.08 (12%) at $29.49 in early trading today.
Semiconductors have been perceived as a drag on Agilent's stock, which trades 25 to 30 percent lower than its test-and-measurement peers, Sullivan said. The changes will focus Agilent on its franchise business.
Test and measurement is about a $40 billion market, half of it in bioanalytical measurement, Agilent officials said, and the market is expected to grow about 8 percent per year. Sullivan told analysts he'd like Agilent to better that, growing 10 percent per year through "organic growth as well as acquisitions." Areas of expansion might include nanotechnology and homeland security, he said.
Agilent has $3 billion in cash to make any acquisitions, although Sullivan promised the company would be "very prudent" in considering what to buy.
For its third quarter, which ended July 31, Agilent reported revenues of $1.69 billion -- lower than its expectations of $1.7 billion to $1.8 billion -- and net income of $104 million, or 21 cents per share.
Agilent's reported pro forma net income of 28 cents a share beat analysts' estimates by two cents a share.
The numbers compare to second-quarter results of $1.69 billion in revenues and $95 million in net income, or 19 cents per share. For its third quarter last year, Agilent reported revenues of $1.89 billion and net income of $100 million, or 21 cents per share.
— Craig Matsumoto, Senior Editor, Light Reading