Smith & Nephew U.S. pay wheeze hides deeper logic
By Ed Cropley
(The author is a Reuters Breakingviews columnist.)
LONDON, June 25 (Reuters Breakingviews) - British artificial-knee maker Smith & Nephew may move its primary listing to the United States, according to the Financial Times. There are lots of sound reasons for the 15 billion pound group to make the jump, not least its acquisitive ambitions and hefty U.S. exposure. Doing so to give Chief Executive Namal Nawana a salary bump is a sure way to put shareholders' noses out of joint.
A U.S. listing would do more than just line the C-suite's pockets. Smith & Nephew's valuation, at 21 times 2019 net income, lags larger U.S. rivals such as Boston Scientific and Stryker , which trade on 25 and 24 times respectively. A place in, say, the S&P 500 Index would give the group access to a deeper pool of capital and help close that gap.
And it would help Nawana live up to his reputation as a dealmaker. Merger and acquisition activity in the medical devices sector is hotting up, partly due to consolidation among healthcare providers. Only in March Nawana snapped up medicine-maker Osiris for $660 million. But if he wanted to pull off a large transaction, shareholders of potential targets would probably be happier to be paid in liquid dollar-denominated paper rather than pounds or depositary receipts.
Arguably, Smith & Nephew'sUK listing is an anachronism. Roughly two-thirds of its $4.8 billion of revenue last year was generated in America. However, the group would still need to win over UK shareholders, whose support can't be taken for granted. Last year, for example, they rebelled against Unilever's , attempt to shift its headquarters to the Netherlands. Making CEO pay part of the equation is unlikely to win many fans.
- Smith & Nephew board members have discussed moving the British medical devices company's listing to the United States, chiefly to allow it to pay Chief Executive Namal Nawana a higher salary, the Financial Times reported on June 25.
- Smith & Nephew declined to comment directly on the report, saying it was "focused on delivering its strategy and on continuing to build on the momentum in the business". De-listing from London was "not part of this strategy", it said.
- Smith & Nephew shares, which have gained 16% so far this year, were down 0.4% at 17.18 pounds by 1203 GMT on June 25.