Regulatory News Item
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN OR INTO ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF THAT JURISDICTION
FOR IMMEDIATE RELEASE
Proposed sale of
· Sale of
· The Proposed Transaction is superior to all other proposals received during the separation process and is considered a better outcome for shareholders than a demerger
· Smiths expects to receive net cash proceeds on completion of the Proposed Transaction of
· In order to participate in future value creation, Smiths will also receive a 30% equity interest in
· Smiths will consult with major shareholders on the return of proceeds
· TA's acquisition of
· The Proposed Transaction simplifies and positions Smiths for focused growth in its core industrial technology business
· Completion and receipt of the initial cash proceeds are expected by the end of calendar year 2021, subject to approval by Smiths' shareholders and receipt of other customary regulatory approvals
· The Proposed Transaction is unanimously recommended by the Board to be in the best interests of shareholders
"This transaction positions Smiths as a more focused industrial technology company with compelling opportunities for growth, a common operating model and shared purpose. Delivering on our commitment to separate, the sale captures immediate value for Smiths' shareholders and positions us well for further value creation through our retained 30% ownership in
We believe that TA is well-positioned as a growth investor to support
"Our new ownership structure presents a great opportunity for
Investor and analyst briefing
A conference call for investors and analysts will be held at
Jemma Spalton, Director of Investor Relations
Alex Le May /
Goldman Sachs (Joint Sponsor, Joint Financial Adviser & Joint Corporate Broker) +44 (0)20 7774 1000
JP Morgan Cazenove (Joint Sponsor, Joint Financial Adviser & Joint Corporate Broker) +44 (0)20 7742 4000
Gleacher Shacklock (Joint Financial Adviser) +44 (0)20 7484 1150
This summary should be read in conjunction with the full text of this announcement. A circular containing further details of the Proposed Transaction and a notice convening a general meeting of Smiths will be sent to Smiths shareholders as soon as is practicable. Defined terms used in this summary have the meaning given to them in the full text of the announcement.
Smiths is a global technology company listed on the
Proposed sale of Smiths Medical
Smiths is today announcing that it has entered into an agreement to sell Smiths Medical 2020 Limited, the holding company of its global medical devices business ("Smiths Medical"), to Bidco, a wholly owned subsidiary of funds advised by
A circular containing further details of the Proposed Transaction and a notice convening a general meeting of Smiths will be sent to Smiths' shareholders as soon as is practicable.
Background to and reasons for the Proposed Transaction
Smiths Medical is a leading global medical device business specialising in infusion systems, vascular access, and vital care. The Board determined that the separation of Smiths Medical would enable Smiths to concentrate on growing as a leading industrial technology group and enable Smiths Medical to focus on realising its full potential in the dynamic medical device market. Since the announcement of the proposed separation, Smiths Medical has been accounted for as a discontinued operation.
Principal Terms of the Proposed Transaction
The Proposed Transaction values Smiths Medical at an enterprise value of
The consideration on completion of the Proposed Transaction comprises:
· Expected net cash proceeds to Smiths of
· Ordinary shares, preferred shares and an A share in Topco, together equivalent to 30% of the share capital of Topco on completion of the Proposed Transaction representing a reinvestment of
The A share in Topco to be held by Smiths (the "A Share") will benefit from a preferential distribution right of up to
The Proposed Transaction is a Class 1 transaction for Smiths under the UK Listing Rules and is therefore conditional upon the approval of Smiths shareholders. It is also conditional on receipt of certain anti-trust regulatory approvals. The Proposed Transaction will not proceed if such conditions are not satisﬁed (or waived, where applicable) on or before the date which is 6 months from the date of this announcement.
As is usual in transactions of this nature, the sale and purchase agreement contains obligations on both parties to obtain the required approvals, as well as customary warranties, indemnities and covenants.
As part of the Proposed Transaction, Smiths has agreed the terms of a trademark licence, which grants Smiths Medical the right to use certain trademarks owned by Smiths to manage its transition from compliance with the Medical Devices Directive to the Medical Devices Regulation in the
As part of the Proposed Transaction, Smiths and TA have agreed a shareholders' agreement to govern the relationship between Smiths and TA in respect of their holdings in Topco, providing customary protections for Smiths as a minority investor. A majority of the board of directors of Topco will be nominated by TA. Smiths shall have the right to nominate up to two non-executive directors to the Topco board. JehanZeb Noor will remain as CEO of Smiths Medical.
Under the terms of the shareholders' agreement, Smiths' shares in Topco shall be subject to a three-year lock-up and thereafter be subject to customary restrictions on transfer. TA shall have the right to require Smiths to sell all of its shares in Topco at the same time and on the same terms on a future sale by TA of a controlling interest in Topco (a so-called 'drag along' right). Conversely, Smiths shall have the right to require a purchaser of some or all of TA's interest in Topco to acquire a pro-rata number of Smiths' shares in Topco at the same time and on the same terms (a so-called 'tag along' right).
Completion of the Proposed Transaction (and receipt of the initial cash proceeds) is expected by the end of calendar year 2021.
Use of Proceeds and Financial Effects of the Proposed Transaction
The Board intends to balance the use of proceeds between investment in growth and a significant return of capital to shareholders. The retained net cash proceeds will be used to create a strong balance sheet to support investment in value creative growth opportunities. These are predominantly organic opportunities and include the Group's innovative accelerator programmes, which are aligned with long-term trends in sustainability, energy transformation, and safety and security.
The Board is carefully considering the position of the Smiths Industries Pension Scheme and TI Group Pension Scheme (the "Schemes") and in line with good practice, the Group intends to consult with the trustees of the Schemes about the Proposed Transaction.
Smiths will consult with major shareholders on the return of proceeds.
Following completion of the Proposed Transaction, the earnings of the Group will reduce as a result of the Proposed Transaction. It is expected that Smiths' progressive dividend policy will remain unchanged as a result of the Proposed Transaction. Further information on the financial effects of the Proposed Transaction and associated return of capital will be set out in the circular to shareholders.
Information on Smiths Medical
Smiths Medical is a leading manufacturer and supplier of specialist medical equipment and single-use devices, whose purpose is to save and improve the lives of millions of patients globally.
Smiths Medical's products fall into three main segments:
· Infusion Systems: includes products which deliver fluids and medication for pain management and the treatment of acute and chronic diseases for use in both hospital and home settings;
· Vascular Access: includes devices which allow healthcare workers to deliver fluids and medication to patients or to obtain blood samples from patients; and
· Vital Care and Speciality products: comprises devices to manage patients' airways, and systems to maintain patients' body temperature before, during and after surgery.
Smiths Medical has a direct legal presence in 28 countries and sells its products in more than 100 countries. While the US is Smiths Medical's largest single market, with 47 per cent of revenue in the year ended
Trading results for Smiths Medical
The trade, assets and liabilities of Smiths Medical are held by Smiths Medical 2020 Limited, which is an indirect, wholly owned subsidiary of Smiths.
TA has been an active investor in the healthcare industry for more than 30 years. The firm's global healthcare franchise spans pharmaceutical services, payor services and specialty managed care, medical devices, physician groups and facilities, healthcare IT and diagnostic laboratories. During its history, TA has completed more than 70 healthcare investments, six of which are in medical device companies in Europe, including Alma Lasers, Amann Girrbach, Biocomposites, MIS Implants Technologies, PhysIOL and Vivacy.
Summary of information on the Group and future strategy
Following completion of the Proposed Transaction, the Group will be a more focused industrial technology group united by a shared purpose, business characteristics and a common operating model. The Group actively manages its portfolio of businesses to ensure that they are targeted in growing markets where they can achieve a sustainable leading position. Smiths' businesses share the same characteristics: technology differentiation; increasing digitisation; sustainably competitive; and a high proportion of recurring revenues generated by aftermarket and services. Smiths drives sustained competitive advantage through focused deployment of innovation and investment and relentless performance execution through its shared operating model, the Smiths Excellence System. The Group expects to benefit from applying an integrated approach to technology development, especially digital innovation, where Smiths' businesses can share and apply common solutions. This is underpinned by a strong financial framework that allows the Group to generate profitable revenue growth and superior returns.
The Group's continuing businesses are:
(a) John Crane: rotating equipment solutions, including mechanical seals and systems, couplings, filtration systems and predictive digital monitoring technologies to enhance efficiency and reduce emissions for global process industries;
(b) Smiths Detection: detection and screening technologies which protect people and assets, thereby supporting safety, security and freedom of movement across a broad range of markets including aviation, ports & borders, defence and urban security;
(c) Flex‑Tek: engineered components which heat and move fluids and gases for the aerospace, medical, industrial, construction and domestic appliance markets; and
(d) Smiths Interconnect: technically differentiated electronic components, subsystems, microwave and radio frequency products which provide secure connectivity for critical applications in the defence, aerospace, communications and industrial markets.
Following the recent appointment of Paul Keel as the Group's CEO, the Group's future strategy is currently under review. We look forward to updating the market on the Group's revised strategy and priorities at a capital markets day in
Current trading for the Group
The Group remains confident of meeting its expectations for the full year. This reflects the Group's robust first half performance and, as expected, improving second half trends. The Group's performance is underpinned by the incremental benefits of its strategic restructuring programme, which is on track, supporting further good profit conversion with strong cash conversion.
This announcement contains inside information. The person responsible for arranging the release of this announcement on behalf of
Throughout the announcement, the enterprise value of Smiths Medical is stated on a debt free, cash free basis and before taking into account: (i)
In this announcement: (i) references to "£" or "GBP" are to the lawful currency of the United Kingdom; and (ii) references to "$" or "USD" are to the lawful currency of the United States of America.
The sale proceeds received by Smiths under the terms of the Proposed Transaction will be received in USD ($). Equivalents have been presented in GBP (£) in this announcement for illustrative purposes using a rate of
The trading results for Smiths Medical have been presented in GBP (£) and for illustrative purposes the USD ($) equivalents have been provided using the historical average exchange rates at the time the results were reported. These were:
The numbers for Smiths Medical's balance sheet (gross assets and net assets) have been presented in GBP (£) and for illustrative purposes the USD ($) equivalents have been provided using the historical closing exchange rates at the time the results were reported. These were
The Group uses alternative performance measures ("APMs"), which are not defined or specified under the International Financial Reporting Standards ("IFRS") or any other internationally recognised generally accepted accounting principles, to gauge business performance. APMs are not considered to be a substitute for IFRS measures but do provide additional, helpful information. APMs are consistent with how business performance is planned, reported and assessed internally by management and the Board and provide comparable information across the Group.
These performance measures may not be comparable to other similarly titled measures as reported by other companies, as other companies may calculate these measures differently than the Group does; and these measures may not be permitted to appear on the face of the primary financial statements, or footnotes thereto, and in some cases, may not be permitted at all, in US filings made to the SEC. These performance measures have limitations as analytical tools, and none of these measures should be considered in isolation, or as a substitute for analysis of the Group's operating results, including its income statements and cash flow statements, as reported under IFRS.
Certain figures included in this announcement have been subject to rounding adjustments.
Forward Looking Statements
This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements may be identified by the use of forward-looking terminology, including the terms "anticipates", "believes", "could", "estimates", "expects", "intends", "may", "plans", "projects", "should" or "will", or, in each case, their negative or other variations or comparable terminology, "targets", "aims", "forecasts" or by discussions of strategy, plans, objectives, goals, future events or intentions.
These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this announcement and include, but are not limited to, statements regarding Smiths' intentions, beliefs or current expectations concerning, among other things, the Group, results of operations, financial condition, liquidity, prospects, growth and strategies of the Group and Smiths Medical.
By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance and the actual results of operations of the Group and Smiths Medical, and the developments of the markets and the industries in which they operate, may differ materially from those described in, or suggested by, the forward-looking statements contained in this announcement. In addition, even if the results of operations of the Group and Smiths Medical and the developments of the markets and the industries in which they operate are consistent with the forward-looking statements contained in this announcement, those results or developments may not be indicative of results or developments in subsequent periods. A number of risks, uncertainties and other factors could cause results and developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, industry trends, competition, changes in law and regulation, currency fluctuations, changes in business strategy and political and economic uncertainty.
Forward-looking statements may, and often do, differ materially from actual results. Any forward-looking statements in this announcement reflect Smiths' current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Group's business, results of operations, financial condition, prospects, growth and strategies.
Other than in accordance with its legal or regulatory obligations (including under the Listing Rules, the Disclosure Guidance and Transparency Rules, the Prospectus Regulation Rules, the Market Abuse Regulation (EU No. 596/2014) and the Market Abuse Regulation (EU No. 596/2014) as it forms part of domestic law by virtue of the
No profit forecast or estimates
Unless otherwise stated, no statement in this announcement is intended as a profit forecast or a profit estimate and no statement in this announcement should be interpreted to mean that earnings, earnings per Smiths share or income, cash flow from operations or free cash flow for the Group or Smiths Medical, as appropriate, for the current or future financial years would necessarily match or exceed the historical published earnings, earnings per Smiths share or income, cash flow from operations or free cash flow for the Group or Smiths Medical, as appropriate.
This announcement is not intended to, and does not constitute or form part of, any offer or invitation to purchase, acquire, subscribe for, sell, dispose of or issue, or any solicitation of any offer to sell, dispose of, purchase, acquire or subscribe for, any security or a solicitation of any vote or approval, in any jurisdiction. Smiths' shareholders are advised to read carefully the formal documentation in relation to the Proposed Transaction once it has been despatched. Any response to the Proposed Transaction should be made only on the basis of the information in the formal documentation to follow.
The release, publication or distribution of this announcement in jurisdictions other than the United Kingdom may be restricted by law and, therefore, any persons who are subject to the laws of any jurisdiction other than the United Kingdom should inform themselves about, and observe, any applicable requirements. Any failure to comply with these requirements or restrictions may constitute a violation of the securities laws or regulations of any such jurisdiction. This announcement has been prepared for the purposes of complying with English law and the UK Listing Rules and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and regulations of any jurisdiction outside of England.
Important information relating to the joint financial advisers and joint sponsors
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the