Medtronic makes two key additions to its board. How activist Elliott can build shareholder value

Company: Medtronic PLC (MDT)

Business: Medtronic PLC It is a Irish -based company offering health technology solutions. The company’s product category includes advanced surgical technology; Cardiac rhythm; Cardiovascular; Digestive and gastrointestinal; Ear, nose and throat; General Surgery; Gynecological; Neurological; Oral and maxillofacial; Patient monitoring; Kidney care; Respiratory; Spine and orthopedic; Surgical navigation and imaging; Urological; Product Guides; Product Order and Questions; and product performance and consultants. Products include Cardiac Implanted Electronic Device (CIED) Stabilization, Aortic Site Graft Products, Carelink Personal Therapy Management Software, Carelink Pro Therapy Management Software. Services and solutions include surgical central resources, maintenance management services, digital connection information technology (CT) support, equipment services and support, Innovation Laboratory, Medtronic Healthcare Consultancy and Office Based Sinus Surgery.

Stock market value: 118.78b ($ 92,71 per share)

Activist: Elliott Investment Management

Ownership: N/A

Average Cost: N/A

Activist Comment: Elliott is a very successful and intelligent activist investor. The company’s team includes leading technology from private capital companies, engineers, business partners – old technology CEOs and COOs analysts. While evaluating an investment, the company also hires expertise and general management consultants, expert cost analysts and industry experts. Elliott has followed companies for years before investing and has impressive board candidates. The company has historically focused on strategic activism in the technology sector and has been very successful in this strategy. However, in the last few years, the activism group has grown and Elliott has been doing much more governance -oriented activism and creating value from the level of board of directors of companies.

What’s going on

Medtronic Plc on August 19 announced the appointment John Groetelaars (former Dentsply Sirona CEO and former president of Hilrom) and Bill Jellison (former Vice President, Stryker CFO) Elliott after being engaged to the board of directors. In addition, the Board of Directors Announced the formation Growth Committee and Business Committee. While Jellison will work in both, Groetelaars will participate in the growth committee.

Behind the curtain

Medtronic is the world’s largest medtech company with income– With the history of Medtech innovation and market leadership, which dates back to the 1940s. While the cardiology segment continues to be inheritance nuclear work (37% of income), Medtronic is now a neuroscience (29%), medical surgery (25% and largely diversified with other segments built from the acquisition of Covidien. Closed in 2015) and other (9%, primarily diabetes therapy). Despite this positioning, as a single shop for medical devices, Medtronic’s stock price has become stagnant-just 15% in the last decade and 8% in the last five years.

This stock performance underlines the disappointment of long -term investor in Medtronic’s growth profile. Investors have long been waiting for growth bending due to their attractive recent markets and scale, but Medtronic has been increasing the overwhelming moderate single income for the last 10 years. Many predicted that Medtronic’s growth was disappointed because of the diversification strategy. Medtech peers, such as Boston Scientific and intuitive surgery, pursued depth instead of diversification, and the merger and acquisitions creating a scale in executive and focused markets, and Medtronic left with a larger-growing income base since the acquisition of Covidien.

However, for the first time for many years, the administration has not only accepted this problem to the market, but also does something. This message comes in the form of establishing a growth committee and adding the newly appointed director Bill Jellison (former Vice President and Stryker CFO). In particular, these actions were taken after Elliott’s participation. The Growth Committee is directed to portfolio management, including reviewing the current business portfolio for supporting organic growth, allocating research and development more effectively, and in order to monitor future asset sales. For this purpose, Jellison will be a valuable director. In addition, Elliott has shown that even if there was no board seat for a Elliott director, it may be a valuable active shareholder by evaluating and executive by evaluating and executive.

Medtech has also seen margin challenges in recent years, and the management deals with an activity committee. This committee focuses on creating rooms for P & L and gross margin expansion. As with most Medtech businesses, Medtronic Covid-19 has been under pressure since its pandemia. However, their peers usually experienced 100 to 200 base margins, while Medtronic’s gross margins (currently 65%) eroded about 500 BPS. This is another area where we see Elliott’s portfolio companies as an active shareholder.

Although these two committees are new, they will be able to start with a small acceleration. Medtronik Announced in May In the next 15 months, diabetes will return, which will help the company focus on its basic business. In addition, there are two product development that can significantly contribute to long -term growth: (i) a pulse area, which is a pulse area ablation system, which is released in the US in 2024 and used to treat the atrial fibrillation which has grown rapidly during this year; and (ii) Symplicity Spyral, a renal denervation product used for the treatment of hypertension, has decided to pay a positive repayment from the recently completed Medicare and Medicaid Services centers, which should significantly increase the access and adoption of the product. Although these product developments are absolutely caused to be optimistic, it is a professional and sophisticated process that is more important for shareholders like Elliott, and with these operational and governance changes, shareholders should make sure that the company finally has a process that can provide long -term growth. In order to interpret the book “Last Job: Successful Habits of Visionary Companies”, “ It is the difference between being a time and time manufacturer. The most successful and permanent companies have been clock manufacturers.

Elliott is one of the most productive activist investors of today and has successfully completed the activist stage of this participation. Now the second stage time: the return of the business. Elliott helped to add two directors to the board, which was built for the purpose. Both Jellison and Groetelaars have a comprehensive Medtech experience, as a result of Jellison activist participation, he served on the boards of the other two Medtech companies – Anika therapeutics for Masimo and Caligan Partners for political capital. What makes this participation unique is that Elliott does not enter any official agreement with Medtronic, showing that the administration does not see it as necessary and supports Elliott’s efforts. Currently, the stage is set for a long -term mutual relationship between the two parties, but we will have a unique flexibility if Elliott does not go as planned, but we do not expect that they will have to rely on this emergency.

Ken Squire is the founder and president of the 13D Monitor, a corporate research service on shareholder activism and is the founder and portfolio manager of the 13D Activist Fund, an investment fund investing in the investment portfolio of the activist 13D.