European engineering conglomerate Smiths Group took its Smiths Medical division off of the auction block, saying it plans to keep the family together amid a tough 1st half and after a multi-billion-dollar deal with CareFusion (NYSE:CFN) fell through.
CareFusion was in talks to pay as much as $3.3 billion (£2 billion) for Smiths Medical, according to various reports, but those negotiations collapsed in August 2013.
"It has not proved possible to reach agreement with the potential counterparty on acceptable terms for a transaction," Smiths said at the time. "Discussions have therefore been terminated."
"It’s not a question of regrets or no regrets," Smiths Group CEO Philip Bowman told The Telegraph this week. "In order to sell something, you have to believe that an offer is deliverable and represents value. We didn’t believe it did."
CareFusion continues to list Smiths Medical as a primary competitor in the "procedural solutions" market, according to the company’s most recent 10-K SEC filing. The companies also have a distribution deal, through which CareFusion sells Smiths’ bronchial hygiene products.
Smiths Group CEO Philip Bowman maintained that the company’s medical division remains vital and that there is no break-up in the near future, despite a 5.8% drop in Smiths Medical’s sales in the 1st half of the fiscal year. The acquisition talks and the strain they caused were partly responsible for dragging down Smiths Medical’s most recent financials, the company added.
Smiths Medical posted profits of $116.8 million (£71 million) on sales of of $639.9 million (£389 million) for the 6 months ended Jan. 31, 2014. That compared with profits of $143.1 million (£87 billion) on sales of $679.4 million (£413 million) during the same period last year.
"Smiths Medical saw revenues decline as sluggish procedure volumes, pricing pressure and distributor de-stocking took effect," according to an earnings release. "Margins also fell, weighed down by the impact of the lower volumes which hit operational gearing and the incremental impact from the U.S. medical device tax introduced last year. At the same time, Smiths Medical had to manage the inevitable disruption caused by the approach last year to acquire the business."
Smiths Group said the medical division’s outcomes were "disappointing" but that the company would seek to "drive operational efficiencies" to get things back on track. Nonetheless, medical sales in the coming months are expected to be lower year-over-year, but the decline is slowing down.
"The challenging revenue trends in developed markets are expected to continue in the medium term and we will seek to counter them through the launch of innovative products, offering a broad portfolio, and executing our growth strategy in emerging markets," according to the financial report. "While we will continue to seek cost saving initiatives and operational enhancements, we expect profitability in the short term to be impacted by the full year effect of the U.S. medical device tax, pricing headwinds, and our increased investment in new product development."