Medtronic plans to spin off two of its businesses into a separate company, the latest move by the medical technology giant to tighten its focus on areas of greatest growth.
With $2.2 billion in revenue, the two businesses — patient management and respiratory interventions — account for about 7% of Medtronic’s $31.7 billion in annual sales in its most recent fiscal year.
It is the second time this year that Medtronic has announced plans to offload parts of its operations.
This spin-off is the latest in an ongoing review of its businesses, with more acquisitions and divestitures possible, Medtronic Chief Executive Geoff Martha told analysts on a morning conference call.
“We remain focused on the ongoing portfolio management process and evaluating any potential additions or subtractions to our portfolio,” said Martha.
Medtronic, with operating headquarters in Fridley, expects the separation to occur within the next 12 to 18 months, pending regulatory and board approval. Shares of the company closed 0.7% higher on Monday.
Morningstar senior equity analyst Debbie Wang called the spinoff strategically sound in a research note on Monday.
“Although Medtronic’s respiratory and patient monitoring products benefited from the onset of the pandemic when pulse oximeters and ventilators were suddenly in high demand, these markets typically have slower growth,” Wang said.
He added that demand for these products in the future is likely to remain weak. “Given Martha’s goal of driving Medtronic’s growth, we believe it makes sense for her to divest these two businesses.”
In addition to oximeters and ventilators, the two Medtronic companies sell a number of products, including brain monitoring devices that measure the effects of anesthesia, temperature monitoring tools, intubation devices and tracheostomy tubes.
The move to spin off the patient monitoring and respiratory intervention businesses had been under consideration for a while, Martha said. The two businesses, she added, are not core to Medtronic’s strategy.
“The businesses are not really part of a larger therapeutic ecosystem that we focus on. They don’t have the same synergies as our other businesses,” Martha said.
In May, Medtronic announced plans to spin off its kidney care business to create an independent company with DaVita Inc. Each of the two companies will own 50% of the new company. In fiscal 2022, Medtronic’s kidney business reported revenue of $325 million, or about 1% of its total revenue.
In addition to spinning off parts of the company, Medtronic has also made several recent acquisitions. In May, it completed the $1.2 billion acquisition of Intersect ENT, a manufacturer of products for sinus procedures. In August, the company completed its $925 million deal to buy Affera Inc., a producer of a cardiac mapping and navigation platform.
In July, Medtronic established a possible future acquisition of Israel-based CathWorksthat develops technology for the diagnosis and treatment of coronary artery disease, for $585 million.
On Monday, Medtronic declined to specify where the spin-off will be based.
“The details of the planned separation and our approach continue to be evaluated. We will continue to issue public statements leading to the end of the planned separation, as appropriate,” said Erika Winkels, a Medtronic spokeswoman.
The two spin-off companies employ some 8,000 people worldwide and make up a significant part of Medtronic’s respiratory, gastrointestinal and renal division that resides within its medical-surgical unit. Medtronic employs more than 95,000 people worldwide.
“We do not anticipate any significant changes to daily operations for the majority of our employees,” Winkels said.
The separation is not expected to affect Medtronic’s financial guidance for its 2023 fiscal year, which runs through the end of April, Martha said. The businesses will remain part of Medtronic during the current fiscal year.
Martha said the spin-off allows Medtronic to focus its investments in areas that better align with its long-term growth.
“The process continues,” Martha said. “This is the next step. This is not necessarily the last step.”