Medtronic (NYSE: MDT) today announced its intention to pursue a separation of the company’s Patient Monitoring and Respiratory Interventions businesses, part of the company’s Medical Surgical portfolio.
The separation is the next step in the Fridley, Minnesota-based company’s ongoing portfolio assessment. It will allow the company to better focus investments.
“We are executing on our portfolio management strategy, taking action to create value for Medtronic and our shareholders,” CEO Geoff Martha said in a news release.
Martha later added: “Looking ahead, we remain focused on active portfolio management with an ongoing process of evaluating potential additions and subtractions to further accelerate Medtronic’s growth over the long-term.”
The patient monitoring product portfolio getting spun off will include Nellcor pulse oximetry, Microstream capnography, BIS brain monitoring, Invos perfusion monitoring and HealthCast connected care.
The respiratory interventions technology portfolio includes Puritan Bennett ventilators, Shiley airway portfolio, McGrath MAC video laryngoscopy, DAR breathing systems and PAV+, NIV+ and IE Sync ventilation software. [In a recent MedtronicTalks podcast, Medtronic Respiratory Interventions executives discussed the potential behind the Respiratory Intervention’s group McGrath Mac Video Laryngoscope.]
A new billion-dollar business
Medtronic’s Patient Monitoring and Respiratory Interventions are part of the Respiratory, Gastrointestinal and Renal division within the Medical Surgical portfolio. In fiscal 2022, the combined businesses had global revenue of approximately $2.2 billion.
In August, Martha said during the company’s Q1 earnings call that there would be more portfolio management, including potential tuck-in acquisitions and business divestitures. Some analysts have mentioned the Diabetes and Spine businesses as potential targets for divesture.
The combined businesses have a constant currency revenue growth profile and gross margin profile slightly below the overall Medtronic. Meanwhile, their operating margin profile is slightly higher than overall Medtronic. In addition, they employ more than 8,000 employees worldwide.
Medtronic said the spinoff will deliver expanded value through global scale and commercial reach to drive increased penetration in core strategic markets. Also, the connected care solutions will drive increased share within the company’s existing customer accounts globally.
The company plans to redeploy any net proceeds consistent with its stated capital allocation priorities. Medtronic does not expect the new company’s separation to impact its dividend policy.
Medtronic officials expect to complete the separation in the next 12 to 18 months. The deal needs to meet closing conditions, including final approval from the Medtronic board of directors, receipt of tax opinions and other regulatory approvals.
Medtronic in May announced its intent to form a new medical device company for kidney care. Medtronic and DaVita will co-own the kidney care company — each with equal equity stakes, and led by an independent management team under the terms of the agreement.
BTIG analysts said: “We think investors may have been expecting portfolio [management]. that would have been more immediately accretive to growth or margins, but expect the news will be received as an incremental positive. We anticipate MDT will continue to actively manage its portfolio, and expect further acquisitions and divestitures.”
MDT shares were up slightly today. MassDevice‘s MedTech 100 Index, which includes stocks of the world’s largest medical device companies, was also up slightly.
