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IBM Sells Some Watson Health Assets for More Than $1 Billion

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(Bloomberg) -- International Business Machines Corp. agreed to sell part of its IBM Watson Health business to private equity firm Francisco Partners, scaling back the technology company’s once-lofty ambitions in health care.

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The value of the assets being sold, which include extensive and wide-ranging data sets and products, and image software offerings, is more than $1 billion, according to people familiar with the plans. IBM confirmed an earlier Bloomberg report on the sale in a statement on Friday, without disclosing the price.

The deal “is a clear next step as IBM becomes even more focused on our platform-based hybrid cloud and AI strategy,” said Tom Rosamilia, senior vice president, IBM Software. “IBM remains committed to Watson, our broader AI business, and to the clients and partners we support in healthcare IT.”

IBM launched Watson Health in 2015 with the aim of using its core artificial intelligence platform to help health care providers analyze troves of data and ultimately revolutionize cancer treatment. Many of the company’s ambitions haven’t panned out, though, and some customers have complained that its products didn’t match the hype.

Even after spending roughly $4 billion in acquisitions to prop up the initiative, Watson hasn’t delivered the kind of progress IBM initially envisioned and the unit wasn’t profitable. Last year, the Wall Street Journal reported the unit generated about $1 billion of annual revenue.

The decision to offload the business was seen as a way to help then-newly appointed Chief Executive Officer Arvind Krishna focus on faster-growing cloud computing operations.

IBM is exiting the health care unit at a time when its cloud-computing competitors are doubling down on the sector. In April, Microsoft Corp. acquired speech-recognition pioneer Nuance Communications Inc. for $19.6 billion in a bid to upgrade hospitals’ digital record-keeping. Meanwhile, Oracle Corp. said in December it would spend $28 billion to buy medical-records systems provider Cerner Corp.

IBM initially hired Morgan Stanley to explore a sale of the unit early in 2021 but that process ended without a deal. The company revived sale efforts late last year, bringing on Bank of America Corp. to help it explore a sale of the same asset minus segments including a government services business that IBM had decided to keep, the people said. A Morgan Stanley spokeswoman declined to comment.

The transaction is expected to close in the second half of this year, IBM said. The current management team will continue in similar roles in the new independent company, serving existing clients in life sciences, government health and human services sectors and more. IBM shares were little changed in early trading Friday in New York. They are up about 5% in the last year.

(Updates with Morgan Stanley decline to comment.)

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