Smith & Nephew Shares Jump on Activist Investor Grab

Commentators
say
the
company
will
now
have
its
feet
held
to
the
fire
by
the
development,
which
will
likely
result
in
more
ambitious
targets
being
set
for
the
business.

“Cevian
has
previously
taken
positions
in
UBS
[UBSG],
Vodafone
[VOD]
and
Aviva
[AV.]
in
an
attempt
to
force
change
and
the
case
for
doing
so
at
Smith
&
Nephew
is
presented
by
a
near-40%
decline
in
the
share
price
over
the
last
five
years,”
says
AJ
Bell
investment
director
Russ
Mould
in
a
note.

“The
company
was
severely
affected
by
the
pandemic
as
elective
procedures
like
hip
and
knee
replacements
were
cancelled,
reducing
demand
for
its
orthopaedic
products.
Lockdown
also
hit
the
company’s
supply
chain,
as
it
did
for
many
businesses.

“Cevian
is
likely
to
hold
management’s
feet
to
the
fire
and
may
look
for
more
ambitious
targets
than
set
out
under
the
existing
improvement
plan.
It
could
also
push
for
a
rationalisation
of
the
company’s
portfolio,
which
encompasses
sports
medicine
and
wound
care
alongside
orthopaedics.”

In
a
statement,
Smith
&
Nephew
said
it
had
“an
open
dialogue
with
our
shareholders
and
will
continue
to
engage
with
Cevian,
as
we
do
with
all
of
our
shareholders.”

Key
Morningstar
Metrics
for
Smith
&
Nephew
Stock 

• Fair
Value
Estimate:
£15.12
• Morningstar
Rating: ★★★★★
• Morningstar
Economic
Moat
Rating:
Narrow
• Morningstar
Uncertainty
Rating:
Medium

Why
is
Smith
&
Nephew
Being
Targeted?

Smith
&
Nephew
has
faced
significant
difficulties
in
recent
years,
suffering
hits
to
its
supply
chain
as
well
as
reduced
sales
in
China
due
to
ongoing
problems
with
its
volume-based
procurement
programme.

The
company
has
also
faced
a
high
turnover
in
the
c-suite,
appointing
three
chief
executives
over
the
last
five
years.

Debbie
Wang,
senior
equity
analyst
at
Morningstar,
recently
wrote
that
Smith
&
Nephew’s
turnaround
plan
under
its
current
CEO
Deepak
Nath
is
showing
signs
of
progress,
and
especially
outside
of
the
US,
however.

“Though
improvement
has
been
taking
hold,
the
pace
remains
on
track
with
our
expectations
for
the
full
year,
and
we
are
therefore,
leaving
our
Fair
Value
Estimate
unchanged,”
she
wrote.

Yet
the
firm’s
longstanding
problems
in
the
US
remain
unchanged.

“Existing
issues
with
low
inventory
of
certain
items
and
the
availability
and
turnover
of
instrumentation
sets
in
the
US
were
already
problematic,
but
any
improvement
has
been
hampered
by
turnover
in
the
commercial
organisation
in
2023,”
she
said.

What
is
an
Activist
Investor?

Activist
investors
buy
stakes
in
publicly-traded
companies
to
deliberately
force
a
change
of
strategy
or
promote
a
specific
business
project.
Usually
a
specialised
hedge
fund,
the
investor
aims
to
change
how
a
company
is
managed.

The
goals
of
an
activist
investor
can
range
from
advising
management
on
the
direction
of
the
business
or
in
some
cases
taking
a
more
aggressive
stance
on
board
change
or
even
an
outright
sale.

Nelson
Peltz,
the
US
billionaire,
is
a
famous
example
of
an
activist
investor.

Peltz
helped
found
New
York
alternative
investment
manager
Trian
Partners
in
2005,
and
he
recently
took
a
stake
in
London-listed
pest
control
firm
Rentokil
(RTO),
stating he
would
engage
with
the
firm’s
leadership
on
“ideas
and
initiatives
to
improve
shareholder
value.”

When
the
announcement
dropped
on
June
12,
Rentokil’s
share
price
jumped
11.6%
to
£4.62.

This
year
he
also
got
into
a
proxy
battle
with
Disney
(DIS)
that
originally
aimed
to
oust
two
board
members:
Maria
Elena
Lagomasino
and
Michael
Froman.
However,
Peltz
ended
up
losing
the
battle,
which
resulted
in
the
sale
of
his
stake
in
the
entertainment
giant.

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