By Jof Enriquez,
Follow me on Twitter @jofenriq
Medtronic, the world's largest pure-play medical device company, is reportedly in the early stages of selling part or all of the legacy medical supplies business it acquired through its purchase of Covidien more than two years ago.
The business unit, which sells a wide range of products including needles, syringes, catheters, and medical instruments, could be had for as much as $5 billion, people privy to Medtronic's plans told Bloomberg. That's eight to 10 times the EBITDA (earnings before interest, taxes, depreciation and amortization) for the $500-million unit, according to one of the sources.
Announced in June 2014 and completed in January 2015, Medtronic's merger with Covidien added much scale to Medtronic's portfolio beyond its core business, cardiac devices. The two companies have little product overlap. The addition of Covidien — which Medtronic now calls its Minimally Invasive Therapies Group (MITG) — aided Medtronic's aspirations to diversify its portfolio, particularly for its smaller surgical technologies division. Also, the integrated portfolio was expected to help Medtronic in negotiating with hospital clients.
The medical supplies unit was a modest part of Covidien's business leading up to the deal, accounting for $1.6 billion of the company's $10.7 billion in 2014 annual sales, according to the Minneapolis/St. Paul Business Journal. Many of the legacy Covidien supply products became part of Medtronic's patient monitoring and recovery unit, which generated $4.3 billion in revenue during Medtronic's 2016 fiscal year.
Medtronic CEO Omar Ishrak had said previously that they were evaluating which Covidien assets fit well with Medtronic's long-term plans.
"We are looking at the entire range of assets that we have within MITG and kind of assessing that against the strategy and as we go through that process," Ishrak had told analysts, according to the earnings call transcript on Seeking Alpha. "Next is to look at the breadth of everything else and see what fits and what doesn’t. I mean some things clearly do not and we’ll have to see how we monetize those assets as we move forward."
It's unknown if Medtronic plans to divest the medical device business piecemeal or as a whole, although the company already has approached potential buyers, reports Bloomberg.