The world’s leading healthcare technology giant, Medtronic, is spinning off its patient monitoring and respiratory interventions businesses into a separate company. These units include various ventilators, laryngoscopy systems, pulse oximetry and brain monitoring techs and have generated a combined global revenue of $2.2 Bn in the fiscal year 2022.
While Medtronic aims to bring together the ‘best parts’ of each business, experts opine that these divisions are not yet an asset to be valued independently.
Let’s know about the Medtronic spinoff in detail.
Medtronic is spinning off: A deep dive
In 2022, Medtronic has been constantly working on enhancing its portfolio and finding new sources of growth. After acquiring Affera (amount not disclosed), Intersect ENT ($1.1 Bn) and getting into a joint venture with DaVita to create a kidney care-focused medical device company, the company announced spinning off its patient monitoring and respiratory interventions businesses to form a newly developed company (NewCo).
The units separated from its medical and surgical portfolio include:
- Pulse oximeter, capnography systems, brain monitoring, perfusion monitoring and connected care solutions under patient monitoring tech.
- Ventilators, airway portfolio, laryngoscopy, breathing systems and ventilation software systems under respiratory intervention tech.
The separation is a means of cutting off its slower-growing techs. The company said, “the two businesses had revenue growth and gross margin profiles that were slightly lower than the overall company,” in the statement.
“This separation will allow Medtronic to focus our company and our capital on opportunities better aligned with our long-term strategies to accelerate innovation-driven growth and will position NewCo to unlock value.”
– Medtronic CEO Geoff Martha
Due to the NewCo’s small size, the separation is not expected to impact Medtronic’s dividend policy according to Medtronic CEO. The separation will occur within the next 12 to 18 months after regulatory and board approval.
Moving forward, NewCo will focus on building connected care by joining hands with manufacturing firms that are looking to simplify their business and boost investor returns. However, the future of NewCo is unsure as of now since not many details have been publicly disclosed.
What are expert opinions about the Medtronic spinoff?
After becoming an enormous company, finding new sources of growth that can push its enormous needle forward is quite challenging. Many US giant corporations like Johnson & Johnson, General Electric, 3M, etc., have been breaking up their businesses in an effort to focus on their core competencies and boost shareholder returns. The aim of improving organic growth and the supply chain disruption due to COVID restrictions and the Ukraine war propelled Medtronic towards the spinoff.
According to Evercore ISI analysts, the planned separation can help Medtronic simplify and narrow its focus. While the analysts agree spinoff is in the right direction, it doesn’t meet investor concerns. Analysts are also unclear about when Medtronic will be able to reap the benefits of this spin-off.
They find it hard to predict Medtronic’s growth until the company provides more insight into its future growth drivers. Currently, the no-growth segments like diabetes and spine, slow rollout of its Hugo surgical robots, clinical trial miss for renal denervation treatment, and recall of its insulin pumps after FDA warning letter are weighing on Medtronic’s growth.
Also, the semiconductor shortages and rising costs may slow down Medtronic’s dividend raises in the following years, according to analysts.
Investors are yet sceptical about the spinoff as they are unable to see any benefits, and Medtronic’s stock cycle is not performing well. The stock rose about 0.6% at the market close on the day of the announcement.
Continual structural reorganisations and acquisitions by Medtronic
Medtronic is constantly investing in multiple sectors like cardiovascular disorders, orthopaedics, surgical instruments and more over the years. Spending over $67.11B, the company has made 62 acquisitions and 65 investments in years. Covidien ($42.90 Bn in June 2014), Kyphon ($3.90 Bn in July 2007) and Kyphon ($3.90 Bn in July 2007) are some of its key acquisitions. It has also been doing structural reorganisations like a joint venture with DaVita to move its renal care business. Medtronic’s leaders have left the door open to future divestment while they aim to build a profitable ecosystem.
“This is the next step. This isn’t necessarily the last step. It’s an ongoing process here to look at the portfolio.”
– Medtronic CEO Geoff Martha
