Smith & Nephew wins price cut in Plus

Smith and Nephew on Thursday said it had won a SFr159m ($141m, £109m) cut in the purchase price of Plus Orthopedics, the business which caused it to issue a shock profit warning in May last year.

The medical technology group bought the Plus artificial joints business, which was a privately-owned Swiss company, for SFr 1.09bn ($889m at the time) in 2007.

However, last year it discovered “unacceptable sales practices” in some parts of the Plus business, notably in Greece. In a profit warning S&N said the ending of these practices would cut its annual sales by about $100m and profits by about $25m.

At that time David Illingworth, chief executive, said S&N would “pursue whatever remedies we have [against the vendors of Plus] with particular gusto”.

The deal, negotiated between S&N and the Swiss vendors rather than through the courts, would draw a line under the dispute between the two, S&N said. Mr Illingworth said he was pleased to have reached agreement over the question, and “the strategic logic behind the acquisition remains intact.”

Analysts at Exane BNP Paribas said the 15 per cent cut in the purchase price of Plus put the acquisition valuation in line with other deals in the sector. “With this lower price, we believe S&N’s management has recovered part of its undermined reputation among investors,” they said.

In third quarter results issued last November, S&N said its margins were being impacted by the lost sales from Plus. Revenues from the orthopaedic division rose 6 per cent to $513 million, but would have been 9 per cent higher but for the issue with Plus. The group said the trading margin for the division in the quarter was 19.9%, a decrease of 170 basis points, with part of the decline blamed on Plus.

Source: FT

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