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In an attempt to mimic the company’s lifesaving products, Medtronic (MDT) announced that plans to divest its Physio-Control subsidiary have been revived. While overshadowed by broader restructuring plans, the Physio announcement was made during the company’s Q3 earnings release and elaborated on (a bit) during the conference call by the company’s CFO, Gary Ellis (Q&A portion here). Unfortunately, very few details regarding Medtronics’ plans have been released. Not so surprising given Medtronic’s uncertain leadership – current CEO Bill Hawkins is retiring this April and no successor has been named as of today.
Medtronic first surfaced the idea of spinning out Physio-Control, which makes monitor/external defibrillator products, in 2006, but those plans were quickly shelved due to quality-systems issues (the unit has been hit with some recalls over the past few years). While those problems have been put to rest, Mr. Ellis noted that Physio’s margins are “are probably some of the lower ones in company overall and clearly below the company’s average.” As a result he believes the company “can do much better with themselves.” Perhaps. Projects must compete for capital within a company, so not getting the green light doesn’t tell the whole story (could be others with higher growth or strategic reasons etc), but often it means the returns aren’t there. Either way, focused management should be a positive for a division that comprises only a small piece of the pie. Physio-Control reported $104 million of revenue for the quarter, a fraction of the $3.961 billion generated by the overall company.
Without any details, a spin is hardly a guarantee at this point as Medtronic could opt for a different solution such as a sale. We will keep you posted as more information is released.
Disclosure: Author holds no position in any name mentioned.
