Smith and Nephew braces for orthopaedics division shakeup amid activist pressure

Smith & Nephew, one of the world’s oldest and largest medical technology firms, has indicated it may consider a major structural overhaul of its orthopaedics division following years of sluggish performance. The move comes amidst growing pressure from activist investor Cevian Capital, which recently increased its stake in the FTSE 100-listed company to 7.5 per cent.

At a recent meeting with City analysts, John Rogers, the newly appointed Chief Financial Officer, highlighted that the company’s commitment to improving the underperforming orthopaedics segment remains intact. However, he acknowledged that should growth in its US orthopaedics reconstruction market fail to improve sustainably, alternative strategic options could be explored. Smith & Nephew’s shares have plunged 30 per cent over the past five years, largely due to inconsistent results from the orthopaedics business and challenges in competing with rivals.

The scrutiny surrounding the company’s structure has intensified since Cevian’s presence was revealed last year. Analysts at Berenberg Bank noted that 2025 would likely be a decisive year for the firm. They stated that if substantial progress isn’t seen in the orthopaedics business, calls for bolder, potentially transformative changes could increase sharply.

Smith & Nephew Chief Executive Deepak Nath has strongly defended the company’s current strategy and its three-year transformation plan. Nath, who took the helm three years ago, said the foundations for future success have been laid and expects 2025 to deliver both a significant expansion in margins and enhanced shareholder value. He reiterated confidence that the orthopaedics business is poised to return to market growth by year-end.

However, scepticism remains among some investors, fuelled further by short sellers betting against the company’s shares. As of now, hedge funds such as AKO Capital and Marshall Wace hold a combined short position of 2.6 per cent, reflecting doubt about the turnaround’s success.

Despite these challenges, Smith & Nephew is keen to showcase progress through its broader operations, which also include wound care and sports medicine divisions. It remains to be seen whether this year will mark a turning point for the 169-year-old company, or force it to take more decisive steps to overhaul its structure under the weight of shareholder pressure.