Elliott urges Smith & Nephew to slim down business

British medical device group has reportedly rebuffed demands from activist fund but has hired advisers

A unit of Paul Singer’s aggressive activist fund Elliott Management has pushed for UK medical device maker Smith & Nephew to shed certain parts of its business, in a move that could make the company a more attractive takeover target.

According to people following the situation, S&N have rebuffed the activist’s demands, which have been made in the past few months for it to explore disposals. The FTSE 100 company has turned to help from advisers at Morgan Stanley and Lazard.

Elliott’s campaign is being run out its European division called Elliott Advisors, which is based in London and led by Paul Singer’s son Gordon.

The exact size of the $33 billion hedge fund’s stake could not be determined, although two of these people said that Elliott had a position of more than 2 per cent in S&N. At that level, it would rank as one of the company’s top seven largest shareholders.


The hedge fund’s moves in Europe come as prominent US activists are turning to the continent for more opportunities. European campaigns by US activists have deployed $9.9 billion this year, compared with only $2 billion last year.

This month S&N said it had begun a search for a new chief executive after Olivier Bohuon, who joined the company in 2011 after stints at a number of pharmaceuticals groups including GlaxoSmithKline, announced he would retire by the end of next year.

S&N, which reports its next set of results on November 3rd, said it “does not comment on rumour or speculation and we do not comment on the identity of our investors”. Elliott declined to comment.

The UK group has been perennially viewed as a takeover target in recent years, as the medical devices industry has consolidated.

The company’s share price has more than doubled over the past five years but it has also underperformed some of its peers, such as Stryker, its larger US-based rival, which in 2014 disclosed that it had been working on a bid for the UK company.

Over the past year, shares in S&N, which has a market capitalisation of £12.42 billion, have risen by more than 14 per cent.

Besides Stryker, other leaders in the industry include Johnson & Johnson, which acquired orthopaedic device maker Synthes for $21.3 billion in 2012, and Zimmer Biomet, which was formed by a $14 billion takeover in 2014.

S&N is divided into three franchises: one which focuses on sports medicine, trauma and other surgical businesses, a second focused on reconstruction, and a third concentrated on advanced wound management.

Each of the divisions showed low single-digit underlying growth – stripping out the impact of currency movements – according to the company’s latest set of results.

Geographically by far the company’s strongest performance was in emerging markets, where underlying growth was 13 per cent, compared with 2 per cent in the US.

Joe Walters, a fund manager at Royal London Asset Management, which owns shares in S&N, said the company needed to move away from lower growth products and increase sales in emerging markets.

He added that the company had a credible management team, pointing to the appointment of Graham Baker, who began in March as chief finance officer from AstraZeneca, and a strong chairman in Roberto Quarta, a private equity executive at Clayton, Dubilier & Rice.

Dan Mahony, a life sciences investor from Polar Capital, an investment management company not currently invested in S&N, argued that it needed to make an acquisition to cement a dominant position in one of its areas of operation, suggesting the board may have been too “risk averse” about engaging in M&A.

He added: "With the amount of change going on in the industry, I don't think just trying to keep a status quo and keep a ship steady is a viable option." Nor had the company displayed sufficient technological innovation, for example in the area of robotics where Stryker had built capability, he said. – Copyright The Financial Times Limited 2017