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Smiths Group in talks about merging medical division with ICU Medical
Smiths Group confirmed on Tuesday that it is in very early stage discussions about a potential combination of its medical division with Nasdaq-listed ICU Medial.
Responding to press speculation, the company added that it routinely reviews all options for its portfolio of businesses to maximise value for shareholders.
"There can be no certainty that a transaction will be concluded," it said.
RBC Capital Markets said: "We consider the talks a positive for the Smiths investment case, albeit with the caveat that no potential financial terms have been mooted and that the talks could still come to nothing. We feel that investor hopes regarding a major portfolio move had receded, so this will come as a positive surprise.
"We applauded some of the early portfolio reshaping brought about by the management team as the focus switched from 'break-up' to 'bulk-up'. However, the Smiths investment case was starting to appear somewhat lacking a catalyst, as it moved into the delivery phase."
Numis noted press speculation of a £2bn valuation for the medical unit of 11x EBIT which it said was "a very low ball figure" having considered a spin-off at least twice in the last decade at a similar or higher price.
"We note that ICU trades on a forward EBIT multiple of 26x making mid teen margins against Smiths Medical circa 20%. We see £3bn as a far more realistic starting point (EBIT 16x) for Smiths Medical.
"It is also an interesting time to consider such a deal given the recent investment made which management expect to start to deliver growth from H2 2018 (year to July) after five years of top line stagnation. A nil disposal premium merger may not prove overly attractive but no doubt this will increase interest from other parties once more, potentially including PE as previous."
At 0825 BST, the shares were up 3.9% to 1,786.50p.