The acquisition would boost Philips' medical systems division. Investors reacted positively the the news with Philips shares rising 1.52 percent to 22.22 euros per share two hours after the Amsterdam exchange opened.

"This is yet another step to strengthen our medical an imaging business," Jouko Karvinen, chairman the medical systems division of Philips, said in a conference call with journalists on Thursday.

The deal values Intermagnetics stock at 27.50 dollars per share. Philips said the board of directors of Intermagnetics unanimously approved the transaction.

The electronics giant said it expected the transaction to be "accretive to its operating margin towards the end of 2007."

Intermagnetics develops, manufactures and markets high-field superconducting magnets used in MRI systems and mainly supplies hospitals.

Completion of the transaction is subject to regulatory approval, to the terms and conditions of the merger agreement and to the approval of Intermagnetics' shareholders, Philips said, though no timeframe was given.

Magnetic Resonance Imaging is one of the key imaging technologies in radiology departments in hospitals. In 2005, the total MRI market was around five billion euros.

Magnetic resonance imaging is radiation free, and is the preferred technique for high-resolution imaging of the brain, spine, abdomen, breast, prostate, blood vessels, and of all joints in the body.