In terms of a simple story to sell, it doesn’t get much better. Philip Bowman, serial auctioneer of sub-scale FTSE 100 companies, is to take the helm at Smiths Group, replacing long-standing chief executive Keith Butler-Wheelhouse. Having flogged Allied Domecq to Pernod Ricard, and Scottish Power to Iberdrola, Mr Bowman will take one look at Smiths’ disparate portfolio of medical, detection and engineering activities and call in the investment bankers. What is more, the joint venture in detection with General Electric that Mr Butler-Wheelhouse had arranged was called off last week. It had been viewed by many investors as a poison pill.
The reality could be less straightforward. Private equity may be out of the picture at the moment thanks to the credit crunch, meaning a straight bid-and-break-up scenario is unlikely. So extracting juicy valuation multiples would require a contest between trade buyers for the different assets. That GE showed interest only in detection and aerospace, which it bought earlier this year, suggests demand may not be as strong as some of the more optimistic break-up valuations imply. A sensible approach may well be to spend time improving the businesses ahead of an eventual sale. Mr Bowman is not a one-trick pony. He ran and helped turn round Allied for five years before it was taken over.
Nonetheless, the synergies generated by Smiths’ current make-up are not obvious. The group has had two years to integrate its Medex acquisition and improve performance in the rest of its medical division but has failed to deliver promised profit growth. Last year turnover in the unit actually shrank owing to problems with moving production to lower-cost areas. Forecast earnings growth for the group as a whole is lacklustre. The timing and manner of any dissolution remains uncertain but it is hard to see Wednesday’s announcement as anything other than a signal that change is in the wind.