Kodak to Sell Diagnostics Medical Unit for $1 Billion : Health care: Analysts say the decision can be traced to increased concern about reform legislation.

Eastman Kodak Co. will sell its Clinical Diagnostics unit, a major worldwide supplier of diagnostic products, to health care products giant Johnson & Johnson for $1 billion in cash, the companies said Tuesday.

The combination with Johnson & Johnson’s Ortho Diagnostic Systems would create the third-largest maker of diagnostic products, with about $1 billion in annual sales. The products are used in blood donor centers, hospitals, laboratories and homes to monitor blood glucose and problem pregnancies.

Kodak had said earlier that it would sell off its health care businesses. Industry observers Tuesday also linked the sale to increased speculation about pending health care legislation in Washington.

“The core, underlying reason for this deal and others is the grave concern that diagnostic procedures will be hit particularly hard as a result of whatever health plan is finally approved,” said David Anast, publisher of Biomedical Market Newsletter in Costa Mesa. “A number of companies, including Kodak, are looking to divest their businesses, and others are looking to build market share.”

James L. Kelly, chief financial officer of Irvine-based Trimedyne, which manufactures a fiber-optic catheter used in diagnostic procedures, said: “It’s another example of the overall consolidations going on in the medical device manufacturing industry. . . . And that’s tied in with the overall consolidation under way in the health care delivery system.”

A Kodak spokeswoman said the company’s diagnostics division has no manufacturing plants in Southern California. Johnson & Johnson owns half a dozen medical and biotechnology companies in California.

Kodak’s Clinical Diagnostics unit had worldwide revenue of $535 million last year.

Under the agreement, Kodak would transfer to Johnson & Johnson essentially all of Clinical Diagnostics’ assets, including personnel, patents and technology, production equipment and products.

Clinical Diagnostics would become a unit of New Brunswick, N.J.-based Johnson & Johnson, the world’s largest maker of health care products.

Kodak, based in Rochester, N.Y., would continue to service the unit’s equipment for Johnson & Johnson customers.

The sale is the latest step in Kodak’s plan to sell its health care units and focus on its core imaging businesses. Proceeds would be used to pay down debt and other purposes, the company said.

In late August, Kodak announced the sale of its Sterling Winthrop Inc. over-the-counter drug operation to British pharmaceuticals company SmithKline Beecham for $2.9 billion.

“It demonstrates our resolve to rapidly achieve our strategic goal of total dedication and resource commitment to our core imaging businesses,” George Fisher, Kodak’s chairman, president and chief executive, said in a statement.

Johnson & Johnson said the purchase “fits perfectly” into its strategy.

“The acquisition will add important positions in clinical chemistry and immunodiagnostics to our existing diagnostics businesses and significantly broaden our customer base in the hospital central diagnostic laboratories,” said Ralph Larsen, chairman and chief executive of Johnson & Johnson.

Clinical Diagnostics has manufacturing, research and administrative facilities in Rochester, Cardiff in Wales, Pollards Wood in England and Strasbourg in France.

Johnson & Johnson said it expects to continue to operate from these sites.

The deal is subject to regulatory approval.

Kodak has yet to sell its L&F; unit, which produces Lysol disinfectant, Resolve carpet cleaner and other household and do-it-yourself products.

Analysts previously said the asset sales could add 35 to 40 cents a share to Kodak’s operating profit.

Moody’s Investors Service Inc. affirmed the ratings on $1.5 billion of Johnson & Johnson’s debt, even though the deal, along with the company’s pending $924-million cash purchase of Neutrogena Corp., would temporarily raise its debt levels beyond past levels.

The ratings agency said it expects debt levels to drop due to strong sales and earnings growth in Johnson & Johnson’s base operations.

Kodak stock was up $1.125 to close at $51.25 and Johnson & Johnson slipped 12.5 cents to $50 on the New York Stock Exchange.