Smiths Group mulls £2bn sale of medical unit

Smiths Medical subject of preliminary approach. Picture: Getty
Smiths Medical subject of preliminary approach. Picture: Getty
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ENGINEERING giant Smiths Group is in talks over the possible sale of its medical division, which was involved in the first successful IVF treatment.

The conglomerate, headed by former ScottishPower chief executive Philip Bowman, confirmed yesterday that it was in early-stage discussions after receiving a preliminary approach for Smiths Medical amid reports it could raise £2 billion.

US healthcare group Care-Fusion, which distributes Smiths Medical bronchial hygiene products, has been touted as a possible bidder for the business.

Smiths Medical designed the world’s first commercially available embryo transfer catheter, which played a key role in the conception of Louise Brown, the first IVF baby, who was born in Oldham in 1978.

The division is now one of the largest in the group, contributing 35 per cent of overall earnings and employing 7,750 staff across 30 countries.

Smiths rejected a £2.45 billion offer for the business – understood to come from private equity firm Apax – in January 2011, saying “it would not be in the interests of shareholders to pursue discussions on the basis of an indication at this price level”.

The subsidiary, which delivers specialist devices for the healthcare industry, saw underlying operating profits fall 10 per cent to £87 million in the six months to January as it suffered amid austerity cuts in Europe as well as the impact of a new medical device tax in the US and EU regulation costs.

A trading update last week revealed that earnings in the division were continuing to come under pressure from these factors and investment in emerging markets, but Smiths said revenues growth had held up.

It said: “Looking to the full year, revenue growth is expected to continue, driven by emerging markets and new products. Operating margins will reduce compared with the prior year as a result of the device tax and increased investment. We are partially offsetting this through operational improvements.”

The firm’s last set of annual results showed a 7 per cent rise in group-wide underlying profits to £497 million, boosted by the performance of its oil and gas division John Crane. Smiths employs 23,000 people across five divisions, of whom around 2,000 are in the UK.

The group sparked speculation over a possible break up in 2007 when it appointed Bowman as its chief executive. He had gained a reputation as a dealmaker after his previous two posts, heading Allied Domecq and ScottishPower, both saw the companies being taken over.

In February, analysts at HSBC said in a research note that Smiths Medical was a likely takeover candidate thanks to its position as a “strongly cash-generative business with attractive margins”, noting that the list of possible buyers could include CareFusion.

The San Diego-based group said earlier this month that its third-quarter profits had soared to $84m (£55.2m), up from $32m a year earlier, despite a 2 per cent dip in revenues to $901m.