Four spinoff companies in the orthopedic medtech industry have been completed or announced in the past year, and analysts predict that Medtronic's spine business might soon follow suit.
Spinoff companies typically take place when the parent company believes it will be lucrative to do so and usually result in increased returns for shareholders because the newly independent companies can better focus on their specific products or services.
This year, Zimmer Biomet spun off its spine and dental businesses, and Johnson & Johnson is expected to divide into two separate companies — one focusing on medical devices and drugs and the other focusing on consumer health products — in 2023.
Analysts from Needham & Co., an independent investment bank and asset management firm, suggested that Medtronic's leadership may also be considering a spinoff transaction, with its spine and diabetes businesses the most likely candidates, according to Benzinga.
In the company's second-quarter earnings call in November, Medtronic CEO Geoff Martha said the executive committee was spending "a lot more time" looking at its portfolio and capital allocation.
"Our new operating model is giving us line of sight into what is required to compete and win over the long-term in each of our businesses," Mr. Martha said. "As a result, we're looking at our portfolio with a more critical eye, with a focus on growth and creating shareholder value. I'd be surprised if there weren't changes over the coming fiscal year, but I don't know yet if they will be smaller or more significant."
The company looks a lot different than it did 10 years ago, when former CEO Omar Ishrak said he saw no advantage in spinning off Medtronic's spine unit.
"[Medtronic] turned around its spine business, which has now had several years of at- or above-market growth. But since management isn't only considering underperforming assets, we still see potential for a spine spin-off," according to Needham analysts. "Given [Medtronic's] limited exposure to orthopedics outside of spine, we believe management might choose to spin off the spine business (including enabling technologies)."