Smiths Medical to spin off from parent Smiths Group

Smiths Medical, which employs 850 people in the Twin Cities, is looking for a new CEO to guide it through its impending transition from subsidiary to a free-standing publicly traded company.

The medical device division of British engineering conglomerate Smiths Group, will be spun out into a free-standing company by July 2020, Smiths announced Friday.

The new publicly traded company, which employs 7,600 employees worldwide, will establish corporate headquarters in the United Kingdom and keep its operational headquarters in Plymouth. Shareholders of Smiths Group will also own Smiths Medical at the end of the separation.

In the Friday announcement, Smiths Group executives said that Smiths Medical President and CEO Chris Holmes has left the company, effective Dec. 31.

The search for a new CEO is underway.

Smiths Group Chief Executive Andy Reynolds Smith told investors Friday that Holmes decided the "time was right for a change."

"The previous CEO had been in the company for three years, and he did a great job bringing operational discipline," Smith said. "He felt that as we announced our separation process, we should have a change to take it forward for the long term."

The new chief executive of Smiths Medical is expected to be dually located in the U.K., where the company will become a member the FTSE 100, and in Plymouth, where it opened new world headquarters in 2016.

The decision to do a "demerger" of Smiths Medical into a stand-alone company comes after years of failed efforts to find a buyer for the maker of infusion pumps, patient-warming systems and related single-use "consumable" supplies. Last year Smiths Group failed to agree to terms with California-based ICU Medical, which had sought to acquire Smiths Medical in a $3.6 billion cash-and-stock deal.

The Smiths Group board still remains open to considering "all opportunities for value maximization" as the separation process moves forward, Smith said.

"We've got a great plan here. These will be stronger companies that can accelerate their progress and create value," Smith told investors Friday. But, "our responsibility is to continue to keep our eyes open to opportunities to do even better, and we continue to do that."

Smiths Group and Smiths Medical have been working to reinvigorate their businesses in recent years.

Smiths Group is a $4.2 billion annual revenue company that makes industrial technologies for a wide range of global industries, from luggage scanners at airports to equipment used in oil and gas exploration. Adjusted revenue growth of 2 percent in fiscal 2018 represented the first such growth at Smiths Group in five years.

On Friday, Smiths Group reported 2 percent revenue growth for the first half of its 2019 fiscal year. Smiths Medical revenue declined 3 percent in that period, to $566 million.

Smith said Smiths Medical has been increasing its investment in research and development in recent years to keep its product catalog fresh and to stave off "pricing pressure" on older products. He said that 6 percent to 7 percent of medical sales have been spent on research and development in recent years. That percentage may decline slightly, but not significantly, moving forward.

"There clearly has been some catch-up necessary from underinvestment in the past," Smith said.

Smiths Medical is known for its extensive line of hospital and outpatient medical infusion pumps, with brands like CADD and Medfusion. The company also recently launched the Level 1 convective warmer for preventing hypothermia during all stages of surgery.

Infusion pumps and patient-warmers both drive sales of single-use disposables like IV lines and warming blankets. Last year, 82 percent of all Smiths Medical revenue came from the sales of consumables and disposable products related to its various offerings.

Smith emphasized that the medical group has been launching new products as a result of its investments, but it needs more corporate flexibility.

"The separation will create two stronger companies, both industry-leading companies with distinct strategies and focus that will be better positioned to take advantage of the opportunities for growth and importantly for value in their individual markets," Smith said. "It will enable Smiths Medical to deliver its full potential as a medical device company."

Joe Carlson • 612-673-4779