November 14, 2018 / 7:50 AM / a month ago

Britain's Smiths to spin off healthcare, focus on industrial technology

(Reuters) - British engineer Smiths Group (SMIN.L) plans to spin off its healthcare business to focus on industrial technology, two months after a 7 billion pound ($9.1 billion) deal to merge it with U.S.-based ICU Medical (ICUI.O) collapsed.

Smiths Medical, which has 8,050 employees, has been hit by delays in product launches, a loss of certifications under new regulations and two contract cancellations in the United States.

Investors welcomed the move with shares in Smiths Group rising more than 7 percent to 1,411 pence.

Chief Executive Andy Reynolds said on a call that all options were being considered for the medical unit, which analysts said could either be sold or separately listed.

Smiths Medical’s value was estimated at 2.8 billion pounds based on a slight discount to peer group multiples, given its relative underperformance, Liberum analyst Ryan Gregory said.

Smiths Group, whose five businesses employ 22,000 people and which also makes airport baggage scanners, bomb detectors and industrial products, has a market capitalization of around 5.16 billion pounds.

“Shareholders (may) still own the business and this is just preparing for a clean break if a buyer comes along. Whether this is good news or not depends on the divorce terms, or what a buyer is prepared to pay,” Investec said in a note.

FAILED DEALS

Talks to merge Smiths Medical, which makes products including respiratory devices and catheters, with ICU Medical ended in September as they were unable to agree terms.

And in 2013, Smiths ended here talks with a bidder which media named at the time as U.S. healthcare group CareFusion.

“Preference would be if they could find someone to buy the business, purely because they can be cash rich and re-deploy and invest elsewhere ... clearly it is better off being managed by someone else,” Liberum’s Gregory said.

NYSE-listed Teleflex Inc (TFX.N) and Germany’s B. Braun were named as potential buyers by Gregory. The companies did not immediately respond to a request for comment.

ICU did not immediately comment when asked if it would revist a merger with Smiths Medical.

Smiths Group, which traces its roots back to a jewelry shop in south London in 1851, said in September that the suspension of some of its medical products in Europe would hit its annual profit.

Smiths Medical accounts for more than a quarter of total revenue, but its contribution fell 2 percent to 885 million pounds for the year ended July 31.

When one analyst called the unit a “scarce old beast” and said there was a lack of similar players who might want to consolidate, Reynolds responded by saying: “It is a very valuable business in its potential for sure.”

($1 = 0.7692 pounds)

Reporting by Shashwat Awasthi and Noor Zainab Hussain and additional reporting by Tanishaa Nadkar and Muvija M in Bengaluru; Editing by Sunil Nair and Alexander Smith

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