ICU Medical turns the tables on Smiths Group, offers to buy medical arm

4th Sep 2018 12:45

(Sharecast News) - Shares of Smiths Group got a leg-up on Tuesday after it was reported that US-based ICU Medical had made a largely in cash buy-out offer for its medical arm, which had been turned down.According to Sky News, the offer was made in August and would have valued Smiths Medical at between £2.5bn and £2.8bn.Sky News's Mark Kleinman said the mooted transaction would have been composed "largely of cash", with ICU having been "flexible" about the amount of stock that would also be offered.Nevertheless, while ICU had sales of roughly £1.0bn in 2017, an amount roughly similar to Smiths Medical's, its market value stood at approximately £4.5bn.Indeed, in May speculation had been that it was Smiths who would acquire ICU. At the time, Baxter International was also mentioned as a potential suitor for ICU.Citing "insiders", Sky said ICU made the proposal soon after the broadcaster itself had reported that the two companies were set to abandon talks aimed at creating a £7.5bn transatlantic healthcare group.Significantly, a source close to Smiths pointed to the lack of any announcement to the stock exchange as possible evidence that talks between the two companies were likely still ongoing.Smiths Medical manufactures products for various market segments, ranging from general anesthesia to cardiology, whereas ICU manufactures infusion pumps for drugs.News of a potential combination between the two firms first broke on 29 May, when Smiths said it was in very early stage discussions about a possible tie-up of its medical unit and ICU.Since then, the stock has traded lower, with Smiths having warned in July that changes to rules on medical devices due to come into effect in the European Union might crimp its sales from 2020 onwards.Commenting on that 29 May report, one City-based broker described a de-merger of Smith's medical arm as the "key value conundrum for the group over the last decade".However, reports of a valuation of about £2.0bn were deemed "very low ball", with £3.0bn (16.0 times EBIT) a more likely starting point. The analysts further highlighted how Smiths was sporting margins of about 20.0%, versus ICU's which were in the mid-teens.Furthermore, back then ICU Medical was trading on 26.0 times's its forward EBIT.As well, the broker expected recent investment by Smiths to boost top-line sales growth starting from the second half of 2018, albeit while adding that a nil disposal premium merger, while not overly attractive, might whet the appetite of other parties, including private equity.As of 1320 BST, shares of Smiths Group were edging higher by only 0.22% to 1,621.50p, having earlier risen as high as 1,658.0p.