17th Jan 2025 09:25
(Alliance News) - Smiths Group PLC on Friday said it has a "clear focus" on creating shareholder value as it responded to calls for the engineering conglomerate to split up.
The London-based company makes products spanning the aerospace, communications, energy and security sectors. It was reacting to a request from US activist investor Engine Capital to explore a break-up, as reported by the Financial Times.
In a brief statement on Friday morning, Smiths Group acknowledged receipt of the letter and said it "welcomes feedback from all shareholders".
Defending itself, Smiths said it is performing strongly, noting an upgrade in guidance announced on Tuesday.
The company expects organic revenue growth between 6% and 8% for the year ending July, 2025, up from the previous guidance of 5% to 7%.
This is above the firm's medium-term target, Smiths said, reflecting "broad-based performance across the business, with particular strength versus expectations in Smiths Detection and Smiths Interconnect". Operating profit margin guide was unchanged at a 40 to 60 basis point expansion.
In a letter sent to the Smiths board and seen by the FT, New York-based Engine, which holds roughly 2% of the FTSE 100-listed company, argued it should launch a strategic review of its four businesses, or sell the group entirely.
"We believe that Smiths has significant value that is currently unrealised due to its conglomerate structure," wrote Engine managing partner Arnaud Ajdler and partner Brad Favreau. "It is time for the board to announce a strategic alternatives process."
In response, shares in Smiths Group were 4.5% higher at 1,844.00 pence each in London on Friday morning. It has a market value of GBP6.37 billion. The wider FTSE 100 index was up just 1.0%.
The activist's move comes less than a year after then-Smiths chief executive Paul Keel, who had defended the conglomerate's structure, departed for a US company half its size, the FT noted.
Ajdler and Favreau argued that Smiths was trading at a significant discount to a sum-of-its-parts valuation, and that it should follow other peers and break up. Smith could be worth a 60% premium to the current share price in a sale, they predicted.
"With several break-ups that have created tremendous value for investors in the industrial sector, we see a significant and timely opportunity for the board to unlock meaningful value for shareholders by optimising Smiths' corporate structure," Ajdler and Favreau wrote.
US industrial conglomerate Honeywell International Inc said last month it would consider spinning off its aerospace division after US activist investor Elliott took a USD5 billion stake and pushed it to split.
In the UK, FTSE 100 conglomerate DCC PLC fired the starting gun on a three-way split of its business in November.
Engine Capital, founded by Ajdler 12 years ago and now with roughly USD1.2 billion in assets under management, the FT noted.
By Jeremy Cutler, Alliance News reporter
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