Shares of Philips(NYSE:PHG) witnessed a significant surge early on Monday following the announcement of a smaller-than-expected settlement to address claims related to recalled breathing devices in the United States. The medical devices maker has agreed to pay $1.1 billion to settle all personal injury claims filed in the U.S., providing relief to investors who were previously concerned about the impact on its market value.
Barclays analysts have lauded the settlement, noting that it comes in significantly lower than initial expectations of $2-4 billion. This development brings clarity and alleviates lingering concerns among investors regarding potential litigation costs.
Amsterdam-based Philips has navigated challenges over the past three years stemming from the fallout of the recall of millions of breathing devices and ventilators. The fear of substantial litigation expenses had led to a notable decline in its market value. However, following the settlement announcement, Philips shares surged by approximately 45%, reaching their highest levels in two years.
The recall was initiated due to concerns about the degradation of foam in the devices, which posed potential health risks, including cancer.
CEO Roy Jakobs emphasized the significance of the settlement in ending uncertainty and providing clarity for the company’s future trajectory. While Philips still faces lawsuits in Europe related to the devices, Jakobs believes that this settlement will significantly reduce uncertainty for investors.
In addition to the settlement, Philips has reached agreements with insurers regarding compensation for product liability costs and has booked a provision for settlement payments in its first-quarter results.
The company has also reported better-than-expected first-quarter earnings, with an 8% increase in adjusted EBITA and comparable sales growth in line with expectations. Despite a decline in order intake attributed to slower sales in China, Jakobs expressed confidence in the company’s performance, citing positive order intake growth outside China and a strong margin improvement.
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