Special Situation Investing

Tuesday, December 12, 2006

Medtronic (MDT) to Spinoff Defibrillator Unit

Medical device manufacturer Medtronic has announced that it will be spinning off it's external defibrillator business. Apparently the main motivation is to shed slower growing operations. The spinoff has potential as the new company will be quite small compared to Medtronic. The new company is expected to have a market cap of $700 M to $1 B compared to Medtronic's $62 B market cap. It is possible that some institutional selling will ensue as the new company may not make it into the major indexes. The spinoff is expected to be completed in the first 6 months of Medtronics 2008 fiscal year, which starts in May.

From the article:

Medtronic Chief Executive Art Collins said the company's board chose to spin off Physio now so the parent company can focus on devices for chronic diseases, in markets with larger profit margins and more growth potential than defibrillators. The Minneapolis-based company, with a market value of $61 billion, makes a wealth of devices ranging from cardiac pacemakers, to neurostimulators, to insulin pumps.

Physio-Control believes it will have more control over its own destiny as an independent company, and will be able to attract more investment for its Lifepak line of products, said Webster. The division will also presumably have more stable management than in recent years, when it became a revolving door for up-and-coming Medtronic managers.


Physio-Control will now compete directly with several companies in the defibrillator market, including giant Philips Medical Systems, Zoll Medical and Bothell-based Cardiac Science.


  • Any idea on how this will effect MDT shares?

    I'm a shareholder.

    By Anonymous TJP, at 6:33 PM  

  • Well, this is just my personal guess but I don't think it will have much impact at all. I think the stock popped up a percent or two when the news was released and you might see a little more net gain when the actual spinoff occurs. However, you have to keep in mind that the size of the new company is 1/60 the size of Medtronic so the effects will be fairly small.

    The only thing I might take out of this as an existing Medtronic shareholder is a change in my opinion on management. Obviously they are not megalomaniacs as they are willing to part with businesses they previously controlled. All other factors being equal, I prefer to see management that takes shareholder-focused moves like this.

    By Blogger spinoff, at 3:34 PM  

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