The Medical Technology Blog

Smiths Group reject US$2.45 billion offer!

Smiths Group, a UK-based engineering company, has rejected a US$2.45 billion offer for its largest division, Smiths Medical, from an undisclosed suitor. In a statement, Smiths Group turned down the “best and final” offer and said it would not be in the interests of shareholders to pursue discussions on the basis of an indication “at this price level.” The approach follows fever pitch takeover speculation over another UK company, Smith & Nephew, and is a further sign that the market is looking to start 2011 with some big deals.

Smiths Group remains one of the last significant remaining conglomerates left in the UK and its Medical division has long been seen as a candidate for a spin-off or disposal. In recent times, such talk has intensified as the division has been restructured and revived, emerging as the group’s largest operating subsidiary. The medical business accounted for over one-third of Smiths’ total operating profit (£184 million) in 2009, and contributed just over 30 per cent (£858 million) to the company’s total sales during the same year.

A potential break-up of Smiths Group, which consists of three core divisions, Detection, Medical and Specialty Engineering, has arguably been on the cards for a long time. However, management has always been able to resist such pressure to shed the Medical division because of its ability to deliver sustained revenues. The company specialises in airway management, needle protection, ambulatory infusion, medication delivery, patient monitoring and temperature management products, and operating margins in 2009 of nearly 22 per cent. So for Smiths Group, the sale of a reliable contributor to revenues is a big decision, and with the company not under immediate financial pressure to sell, any acceptable offer for Smiths Medical would have to be on its terms.

Despite this, the appointment of a new chief executive, Philip Bowman, who has a history of breaking up businesses and selling companies, seems to have encouraged a bidder that now is the right time to make its move. Although the identity of the unsuccessful offer has not been disclosed, media reports suggest that the approach came from Apax Partners, the UK private equity group. The rejected offer may have been described as “final”, but is unlikely to be the end of discussions and Apax could still find itself returning with a more attractive offer. Other private equity groups have been touted as potential bidders, but talk has also switched to rivals in the industry, including the possibility of Baxter, Covidien, GE Healthcare and Johnson & Johnson entering the fold, who may be in a position to submit higher bids.

Thanks to Lawrence Miller for this article, Lawrence is editor of Medical Industry Week, Espicom’s weekly industry newsletter.

Espicom Business Intelligence

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