Smith & Nephew shares surge as activist Cevian Capital reveals 5% stake

By Louis Goss

Activist investor Cevian Capital on Thursday revealed it has built up a 5% stake in British medical equipment seller Smith & Nephew, causing shares in the struggling FTSE-100 company to surge.

Swedish investment firm Cevian said in a filing to the London Stock Exchange that it had surpassed the threshold requiring it to disclose its holdings on July 2, having acquired just more than 5% of all shares in the Watford headquartered firm.

Shares in Smith & Nephew (UK:SN), listed on the London Stock Exchange, increased 7% on Thursday, having lost 12% of their value over the past 12 months on concerns about supply chain issues and the declining profitability of its orthopedics division.

Cevian, which counts hedge fund titan Carl Icahn as one of its investors, has previously led campaigns against British insurance giant Aviva, telecoms company Vodafone, and Swiss bank UBS.

"Activist investors often circle a struggling company so the news Sweden's Cevian has taken a stake in medical devices firm Smith & Nephew shouldn't come as a huge surprise," AJ Bell's investment director Russ Mould said.

"The positive share price reaction to Cevian taking a position in Smith & Nephew demonstrates the market thinks an outside catalyst for a shake-up of the business would be no bad thing," Mould added.

Smith & Nephew was first started as a pharmacy business in the northern English town of Kingston upon Hull in 1856, before growing into one of Britain's biggest publicly listed companies through a series of acquisitions.

Over the past five years, Smith & Nephew has seen its share price drop by almost 40% as the result of a series of problems stemming from repeated shake-ups at the top of the company and disruption caused by COVID-19.

In July 2022, Smith & Nephew CEO Deepak Nath, who was appointed in April that year, outlined a 12 point plan to overhaul the medical device company's performance, including by fixing its orthopedics segment and boosting its productivity.

Nath's appointment saw him become Smith & Nephew's third CEO in just three years after his predessor Namal Nawana stepped down from his job in 2019,

Nawana's exit, just 17 months into job, followed the company's refusal to hike his salary. His replacement, Roland Diggelman, later agreed to step down as CEO in April 2022, just two and a half years after taking up his position, to allow Nath to become chief of the firm.

"[Smith & Nephew] 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," Mould said.

"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," the AJ Bell analyst said.

-Louis Goss

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07-04-24 0959ET

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