Smith and Nephew Under Mounting Pressure as Critical Results Loom

The FTSE 100 medical equipment manufacturer Smith & Nephew faces intensifying shareholder pressure to consider a corporate break-up ahead of its annual results next week, particularly if its struggling orthopaedics division fails to show meaningful improvement.

The Watford-headquartered firm has weathered significant challenges, including rapid leadership turnover and volatile trading performance, resulting in a nearly 50% decline in share value since 2020. This deteriorating situation, coupled with recent trading downgrades and increased stake-building by activist investor Cevian Capital, has brought the company’s structure under heightened scrutiny.

Cevian Capital has strategically expanded its holding to 7.5% through a Jersey-based entity, according to US Securities and Exchange Commission filings. The activist investor, known for securing board positions in its investment targets, initially declared a 5% stake last July.

Chairman Rupert Soames, who assumed his role in September 2023, maintains his opposition to break-up proposals, emphasising the company’s integrated strategy across its three business lines. Chief Executive Deepak Nath has similarly defended the current structure, highlighting potential synergies and implementing a comprehensive 12-point improvement plan aimed at generating annual savings exceeding £200 million by year-end.

Market analysts at UBS have noted significant investor interest in determining Smith & Nephew’s sum-of-parts valuation, suggesting a potential value of £16 per share compared to the current £10.33½. This substantial gap has fuelled speculation about hidden value within the group’s structure.

The upcoming results announcement on Tuesday will be crucial for the company’s future direction, with Barclays analysts expressing continued caution about the turnaround strategy, particularly noting deteriorating performance in the hip replacement segment despite modest improvements in knee operations.