Smiths Group activist break-up would be worth 1500p, says Credit Suisse

4th Aug 2015 15:12

(ShareCast News) - After US activist investor ValueAct built a near-5% stake in Smiths Group, Credit Suisse calculated a 1,500p-per-share break-up value for the aerospace engineer.According to reports, ValueAct, an $18bn activist fund which has previously influenced the direction of US companies including Microsoft, Valeant Pharmaceuticals and Motorola, built the stake on Monday, less than a week after its 5.5% stake in Rolls-Royce came to light.Credit Suisse pointed out that ValueAct becomes the third activist on the Smiths shareholder register, which already includes Harris Associate, with a 7.4% stake, and RWC, with 1.4%, making a likely combined holding of over 10% by activists.Given the conglomerate corporate structure of Smiths Group, the Swiss bank felt a potential break-up valuation scenario was appropriate, calculating the sum of the parts of the organisation."In this scenario, we value all divisions except John Crane at peer average multiples plus a 20% premium while John Crane is valued at an average UK Industrials multiple," analysts wrote, adding the view that a John Crane disposal was unlikely given its asbestos liabilities.Also within the break-up scenario, it was assumed that £800m of the disposal proceeds would be contributed into the pension fund as a remediation on top of an assumed circa-£800m of net debt and £150m John Crane asbestos liability.The multiples implied for the divisions in this scenario are 17.8 times 2016 EV/EBITA for the medical arm, which is consistent with recent take-out multiples of Covidien and CareFusion, 16.1 times for the Detection business, 13.4 times for Interconnect and 13.8 times for Flex Tek.Taking the above scenario and assuming current balance sheet value for pension deficit "would increase valuation to circa 17,500p per share".