Smiths Group set to spin off medical arm after sale stopped in September

Shares in engineer Smiths Group soared on plans to spin off its healthcare unit after a proposed sale to ICU Medical fell through in September.

The disposal of Smiths Medical, which was reportedly valued at around £7bn in the ICU deal, will allow the group to focus on its remaining industrial technology operations.

Smiths also hopes the new business will live up to its full potential as it branches out alone.

Talks with ICU Medical, which were revealed in May, collapsed as the two groups failed to reach a deal, the board said in September, hinting that Smiths Medical had been undervalued.

Investors welcomed the news of a spin-off, sending shares as high as 1,419p, a 7.8 per cent rise.

Chief executive Andy Reynolds Smith said: “This planned separation will strengthen both Smiths and Smiths Medical as they each focus on accelerating the execution of their plans and maximising the opportunities in their respective markets.

“Following our focus on operational improvements and increased investment, we believe it is now time to prepare the separation of Smiths Medical from the rest of the Group. Smiths Medical is well positioned to capitalise on its leadership positions and the investments made in the business.

“Smiths will concentrate on executing on its growth strategy as a global leader in industrial technology, driving maximum value for our shareholders.”

The division faced challenges in the first quarter, as some unidentified products were suspended in Europe earlier this year after new regulations forced it to apply for new certifications.

Revenue in the unit dropped two per cent to £885m in the last financial year, Smiths said, but it is expected to get back to growth in the second half of the year.

Smiths has already disposed of some of the business, selling Smiths Medical’s sterile water bottling unit to Amsino Healthcare for $40m in September.

Ryan Gregory, an analyst at Liberum, said: “We believe this is a good move as Medical has been a perennial drag on group performance and should unlock value.

“The exact form of the separation is yet to be decided – we will receive more details alongside the group's interim results in March.”

Jack O’Brien, an analyst at Goldman Sachs, said that the spin off “would allow Smiths Group to focus on growing as an industrial technology group with world class assets (John Crane, Detection, Flex-Tek, Separation), and would allow Smiths Medical to capitalise on its potential as a standalone player.”