On Monday, Varian Medical System announced plans to spin off its imaging components business to have two independent companies. The standalone company will be created through a tax-free distribution to Varian's stockholders and is expected to be completed by the end of the year.

"The business objectives and growth strategies of the imaging and oncology businesses are going in different directions," Dow Wilson, CEO of Varian Medical Systems, told HCB News. "They are two distinct businesses with fundamentally different products, customers, territories and sales and marketing needs."

This transaction will allow Varian to solely focus on advancing its technology and services for cancer treatment. The new company will handle components, software and services for expanded imaging applications and markets.

Varian believes that making these two separate businesses will provide them more freedom to invest in and pursue new growth strategies in their different markets. The investors will also get better transparency and understanding of each business.

The new company will be a high-volume manufacturer of X-ray tubes, flat-panel detectors, connectors and accessories for imaging. It will also sell workstations and software for computer-aided diagnostics and image processing.

Varian anticipates that it will generate about $575 million in annual revenues. It has 1,300 employees worldwide — Sunny Sanyal, senior VP and president of Varian's imaging components business, will be the CEO of the new company and Clarence Verhoef, Varian controller, will be CFO.

“Varian’s Imaging Components business has weighed on the company’s topline growth for the last five quarters,” Brandon Henry, RBC Capital Markets analyst, wrote in a research note, citing slowing customer demand along with competitive and pricing pressures, according to Investors.com. “However, we expect Imaging Components to return to low-single-digit year-over-year growth in fiscal year 2017.”

Henry sees the spin off as an opportunity for the remaining company to broaden its reach in the cancer market, and perhaps shake off the single digit revenue growth that the company has reported over the last four years. “We do not expect any transformational M&A, as management likes to keep a relatively conservative balance sheet,” he wrote. “However, we expect slightly more topline growth going forward to be from tuck-in M&A than in the past.”

In his own analysis, Raj Denhoy from Jefferies, reiterated a Buy rating on Varian Medical Systems stock, with a price target of $95, according to an article on markets.co.

“VAR is moving ahead with a separation of Oncology and Imaging, a move that will allow each business to invest in growth opportunities, including M&A, while pursuing higher profit and cash profiles. Our initial separation math points a fair value of $69-$75 for Oncology and $13-$14 for Imaging, pointing to modest upside from current levels,” said Denhoy.

Varian expects to spend about $35 million for transaction advisory services, depending on whether it will be completed by the end of 2016. The company doesn't think it will impact its non-GAAP financial guidance for fiscal year 2016.

In 1999, Varian Medical Systems spun off Varian Semiconductor Equipment Associates Inc. and Varian Inc. After that, the company's annual sales grew from less than $600 million to over $3 billion.

Since that spin-off was so profitable, Varian is hopeful that this new spin-off will yield similar results.