Medtronic makes two key additions to its board of directors. How the activist Elliott can create a value for shareholders

Company: Medtronic PLC (MDT)

Business: Medtronic PLC is a company in Ireland, which provides health care technology solutions. The company’s product category includes advanced surgical technology; Heart rate; Cardiovascular; Digestive and gastrointestinal; Ear, nose and throat; General surgery; Gynecological; Neurological; Oral and maxillofacial; Patient monitoring; Kidney care; Respiratory; Spinal and orthopedic; Surgical navigation and imaging; Urological; Product manuals; Order of products and surveys; and performance and product opinion. Its products include cardiac stabilization of an implantable electronic device (CIIED), Aortic STENT PRODUCTS, Carelink personal therapy management software, Carelink therapy management software. Its services and solutions include the resources of the outpatient surgery center, care management services, support for digital connectivity technologies (IT), equipment and support services, innovation laboratory, Medtronic health care advice and SINUS SINUS SURGERY.

Market value: $ 118.78 billion ($ 92.71 per share)

Activist: Elliott Investment Management

Possession: n / A

Average cost: n / A

Commentary on the activist: Elliott is a very successful and clever militant investor. The company team includes analysts from the main technological capital -investment companies, engineers, operational partners – former CEOs of technology and coos. When assessing an investment, the company also hires specialized consultants and general management, expert cost analysts and industry specialists. Elliott often looks at companies for many years before investing and has a large stable of impressive candidates from the board of directors. The company has historically focused on strategic activism in the technology sector and has been very successful with this strategy. However, in recent years, its activism group has developed and Elliott has done much more activism oriented towards governance and has created value from a level of advice to a large extent of companies.

What’s going on

On August 19, Medtronic PLC announced the appointment of John Groetelaars (former interim CEO of Dettly Sirona and former president and chief executive officer of Hillrom) and Bill Jellison (former vice-president, director of Stryker) to the board of directors following the commitment with Elliott. In addition, the Council announced the training of the growth committee and the operating committee. Jellison will serve in both, while Groetelaars will join the growth committee.

Behind the scenes

Medtronic is the largest medtech company in the world per income,, With a story of medtech innovation and market leadership dating from the 1940s. Although its cardiology segment remains its inherited basic business (37% of income), Medtronic is now a diversified operator, with its other segments, including neuroscience (29%), medical surgery (25% and largely built from their acquisition as Covidian, which closed in 2015) and others (9%, mainly the treatment of diabetes). Despite this positioning as a one -stop shop for medical devices, Medtronic’s action has stagnated – only appreciating 15% in the last decade and down 8% in the past five years.

This stock performance highlights the long -term frustration of investors in Medtronic’s growth profile. Investors have long been waiting for an inflection of growth due to the attractive end of the company and the attractive scale of the company, but Medtronic has offered disappointing growth in mid-chiffre income for 10 years. Many have hypothesized that Medtronic’s growth has disappointed because of its diversification strategy. While the peers of Medtech as Boston Scientific and Intuitive Surgical continue a depth rather than diversification, performing mergers and withdrawal acquisitions, and the construction scale on targeted markets, Medtronic has sat on the key line since the acquisition of Covidian, which leaves him with a larger income – but slower than peers.

However, for the first time in many years, management sends a message to the market that he recognizes not only this problem, but it does something. This message is in the form of an establishment of a growth committee and adding as a member of the newly appointed director Bill Jellison (former vice-president and financial director of Stryker). In particular, these measures were taken following the commitment by Elliott. The growth committee is oriented towards portfolio management, in particular the search for mergers and acquisitions to complete organic growth, allocating research and development more effectively, and examine its existing business portfolio for ineffectiveness to pursue future sales of assets. Jellison will be a value -added director for this purpose. In addition, Elliott has shown that even without advice siege for an Elliott director, he can be a precious active shareholder, in particular with the evaluation and execution of mergers and acquisitions.

Medtech has also experienced margin challenges in recent years and management is also tackling this by forming an operating committee. This committee focuses on the creation of the room in the P&L and the expansion of the gross margin. As is the case with most Medtech companies, Medtronic has undergone a lot of lower pressure from the COVVI-19 pandemic. However, while peers have generally experienced 100 to 200 points of basis of margin pressure, the gross margins of Medtronic (now around 65%) eroded around 500 bps. This is another area where we saw Elliott help portfolio companies as an active action.

Although these two committees are new, they can start with a little momentum. Medtronic announced in May that it would run its diabetes activities in the next 15 months, which should help the company focus on its main companies. There are also two product developments that could significantly contribute to long-term growth: (i) pulsetelect, an impulse field removal system used to treat atrial fibrillation, launched in the United States in 2024 and developed rapidly during this year; And (ii) nice Spyral, a renal denervation product used for the treatment of hypertension, recently received a favorable reimbursement decision for MEDICARE & MEDICAID SERVICES which is finalized in October, which should considerably increase access and adoption of the product. Although these product developments are certainly reasons to be optimistic, more important for shareholders such as Elliott is a professional and sophisticated process, and with these operational and governance changes, shareholders should be convinced that the company ultimately has a process that can provide long -term growth. To paraphrase the book “Built to Last: succeeds habit of visionary companies”, “ This is the difference between being a cashier and a clock manufacturer. The most successful and sustainable companies have been the clock manufacturers.

Elliott is one of the most prolific activist investors today, and he has already succeeded in the activist phase of this commitment. It is now time of phase two: a turnaround of the company. Elliott helped add two administrators to the board of directors who are specially designed for this situation. Jellison and Groetelaars have a vast Medtech experience, a jellison having sat on the advice of two other Medtech companies following the commitment of activists – Masimo for Politan Capital and Anika Therapeutics for Caligan Partners. What makes this commitment unique is that Elliott did not conclude any formal agreement with Medtronic, indicating that management did not consider it as necessary and that Elliott supports its efforts. Although the scene is currently defined for a mutually beneficial relationship in the long term between the two parties, Elliott has set out to have a single flexibility if things do not go as planned, but we do not expect them to count on this contingency.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholders’ activism, and the founder and portfolio manager of the Activist Fund 13D, a common investment fund that invests in a 13D activist investment portfolio.