The Medtronic headquarters building in Minneapolis, Minnesota.
Ariana Lindquist | Bloomberg | Getty Images
Medtronic said on Monday it would spin off two of its smaller businesses into a new company to streamline its portfolio and increase the pace of revenue growth.
Though the two businesses – patient monitoring and respiratory interventions – are relatively small, the company’s management said the spin off was part of Medtronic’s continued restructuring.
“The process continues. This is a next step. This isn’t necessarily the last step,” Chairman and Chief Executive Officer Geoffrey Martha said in a conference call.
Medtronic, the world’s largest standalone medical device maker, has been restructuring its business over the last few years. In 2018, the company announced a restructuring plan expected to help them save $500 million to $700 million annually over five years.
The two businesses contributed $2.2 billion, or around 7%, to Medtronic’s revenue in the fiscal year ended April 29. They have more than 8,000 employees globally.
“One of the pushbacks on Medtronic has been that the organization is too big and complex,” wrote Evercore ISI analyst Vijay Kumar in a note, adding the spin off would help narrow Medtronic’s focus.
The separation, expected to be completed in the next 12 to 18 months, will also help the company unlock value from the two divested businesses.
The patient monitoring technology portfolio includes Nellcor pulse oximetry and BIS brain monitoring, while the respiratory interventions business comprises ventilators and breathing systems.
US companies such as Johnson & Johnson, General Electric and 3M have been breaking up their businesses amid a growing consensus they perform best with streamlined focus, along with increasing pressure from activist investors to boost shareholder returns.
Medtronic, like many medical device makers, has been facing supply chain shortages and rising costs, exacerbated by the Ukraine conflict and strict Covid-19 lockdowns in China.