Baxter yesterday, today Smith & Nephew? Talk of a 3-way split

That didn't take long. The day after Baxter ($BAX) announced it will split its biopharma and medical products divisions, an analyst is calling for U.K. devicemaker Smith & Nephew to follow suit.

Smith & Nephew ($SNN) hasn't suggested it's thinking of a breakup. That didn't stop Investec's Nicholas Keher from making the suggestion on the company's behalf and setting the outcome of the company's Phase III trial for HP802-247 in wound care as a possible trigger for the split.

Keher suggested a three-way schism, setting up Smith's three main divisions--Advanced Wound Management, Endoscopy and Orthopedics--as independently operating companies.

Investors applauded, sending Smith's stock up on the London market. Its ADR shares rose 2.2% premarket on the NYSE.

"Smith & Nephew is beginning to look like a growth stock again," Keher wrote, according to The Guardian. He forecasts a three-year earnings per share compound annual growth rate in the double digits. Keher set the target price at 1100p ($18.27) and said the hypothetical target would be 1267p ($21.05) postseparation. Smith was trading at 919.5p ($15.28) today, according to The Guardian.

Baxter follows Abbott ($ABT) and Covidien ($COV)--companies that have sent their biopharma and medical divisions separate ways. Unlike those three, sesquicentenarian Smith & Nephew doesn't have biopharma operations per se--but it faces similar problems, Keher argues.

Investec's analysts "struggle to identify adequate synergies in sales, manufacturing or R&D to justify the current combined structure," he wrote. Smith's three divisions operate under "such distinct business models" that each requires "different strategies for capital allocation," he wrote.

According to Keher, if HP802-247 shows positive Phase III data or wins approval, that could trigger the desired breakup. Other events he flagged include the realization of synergy benefits from Smith's Arthrocare acquisition or a hypothetical large, growth-boosting acquisition focused on orthopedics.

- read the Guardian's post
- here's info from on the HP802-247 trial

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