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US activist investor Engine Capital is calling for UK-listed Smiths Group to follow other conglomerates and explore the break-up of a multinational with products and services spanning aerospace, communications, energy and security.
In a letter sent to Smiths’ board seen by the Financial Times, New York-based Engine, which holds roughly 2 per cent of the FTSE 100 company, argued it should launch a strategic review of its four businesses, or sell the group entirely.
“We believe that Smiths has significant value that is currently unrealised due to its conglomerate structure,” wrote Engine managing partner Arnaud Ajdler and partner Brad Favreau. “It is time for the Board to announce a strategic alternatives process.”
The activist’s move comes less than a year after Smiths chief executive Paul Keel, who had defended the conglomerate’s structure, departed for a US company half its size.
Smiths, which has a market valuation of £6bn and is known for making scanners used in airport security checks, this week also announced the retirement of its chief financial officer.
Ajdler and Favreau argued that Smiths was trading at a significant discount to a sum-of-its-parts valuation, and that it should follow other peers and break up. Smith could be worth a 60 per cent premium to the current share price in a sale, they predicted.
Engine’s push is part of a broader trend among industrial businesses as conglomerate structures fall out of favour. The likes of Johnson Controls and 3M have split or spun off businesses, and General Electric last year completed a split into three units.
US industrial conglomerate Honeywell said last month it would consider spinning off its aerospace division after US activist investor Elliott took a $5bn stake and pushed it to split.
FTSE 100 conglomerate DCC also fired the starting gun on a three-way split of its business in November.
“With several break-ups that have created tremendous value for investors in the industrial sector, we see a significant and timely opportunity for the Board to unlock meaningful value for shareholders by optimising Smiths’ corporate structure,” Ajdler and Favreau wrote.
Engine Capital, founded by Ajdler 12 years ago and now with roughly $1.2bn in assets under management, has achieved considerable success with its campaigns.
Last month, it replaced the entire board at software company Dye & Durham in a proxy contest that included removing the chief executive. It has recently targeted freelancing marketplace Upwork and infrastructure consultancy Aecom.
Smiths did not immediately respond to a request for comment sent outside its business hours.
