Kodak selling its medical image unit

Eastman Kodak Co. said Wednesday that it was selling its health-imaging business, created after the discovery of X-rays in 1895, to Canadian investment firm Onex Corp. for as much as $2.55 billion as the picture-taking pioneer bets its future on digital photography and commercial printing.

Kodak said it planned to pay down about $1.15 billion in debt and funnel the rest of the proceeds into unspecified digital ventures as profits from its storied film business rapidly erode.

“Getting rid of the health-imaging unit is a positive -- they’ve got another $1 billion that they can play with,” said analyst Shannon Cross of Cross Research in Short Hills, N.J. However, “they still face the same challenges, and a huge chunk of their earnings was coming from health imaging.”

Onex Healthcare Holdings Inc., a subsidiary of Canada’s largest buyout firm, will pay $2.35 billion in cash and as much as $200 million more if its investors realize an internal rate of return of more than 25%. The deal is expected to close in the first half of this year.

Toronto-based Onex Corp., which has annual revenue of about $17 billion, teamed up on recent takeovers of Australia’s Qantas Airways Ltd. and Raytheon’s aircraft business.

Kodak founder George Eastman expanded to X-ray film in 1896 within months of German physicist Wilhelm Roentgen’s discovery that X-rays would expose photographic plates.

The health group, which makes X-ray film, medical printers and information management software and storage systems and employs 8,100 people, accounted for nearly one-fifth of Kodak’s $14.3 billion in sales in 2005. But the unit’s operating profit plunged 21% that year as margins tightened.

Kodak shares fell 35 cents, or 1.37%, to $25.28. They have traded in a 52-week range of $18.93 to $30.91.