Medtronic will spin out slower-growth patient monitoring, respiratory units to focus on core businesses

Dive Brief:

Medtronic, the world’s biggest medical device company by revenue, plans to spin out its slower-growing patient monitoring and respiratory interventions businesses in the next 12 to 18 months.
The two segments will form a new connected care company, CEO Geoff Martha said in a statement on Monday.
Both units are part of Medtronic’s Medical Surgical Portfolio. The combined business brought in about $2.2 billion in revenue in the company’s fiscal year 2022, which ended April 29. It has about 8,000 employees worldwide.

Dive Insight:

Medtronic is the latest medtech company to consider a spinoff strategy, following Johnson & Johnson, GE, Becton Dickinson and others that are looking to focus on their core businesses. While analysts had initially pegged Medtronic’s diabetes business as a likely spinoff candidate, the company instead created a new operation focused on connected care.

Medtronic said the units it plans to divest have slower revenue growth and lower gross margins than the rest of its businesses. The new company will include Medtronic’s pulse oximetry, brain monitoring and perfusion monitoring solutions from its patient monitoring portfolio. It will also include ventilators and video laryngoscopy breathing systems from Medtronic’s respiratory interventions portfolio.

Medtronic said the spinoff would result in “moderately faster” revenue growth for its core businesses — which include cardiac and vascular devices — and a stronger balance sheet.

“CEO Martha sees better and more-winnable growth opportunities elsewhere in his portfolio,” Stifel Analyst Rick Wise wrote in a research note on Monday.

The announcement comes after “repeated management signals” that Medtronic has been reviewing each business unit,” wrote Wise, adding that “Medtronic clearly has decided the two businesses require greater internal investment than others to drive market leadership/share gain.”

For RBC Capital Markets Analyst Shagun Singh, the planned spinoff is a step in the right direction.

“We expect other announcements to follow as [Medtronic] continues its process of evaluating potential additions and subtractions to further accelerate its long-term growth,” Singh wrote in a note.

The deal is subject to final approval from Medtronic’s board of directors, receipt of tax opinions and other regulatory approvals before it can close. Medtronic’s financial advisors on the planned transaction are Perella Weinberg Partners and Goldman Sachs.