Kimberly-Clark ($KMB) is actively exploring a spin-off of its healthcare business, a generator of $1.6 billion in annual net sales and maker of medical devices including catheters, pain pumps and enteral feeding tubes.
The Dallas consumer products giant perhaps best known for Kleenex tissues, Huggies diapers and Depend undergarments, among other products, disclosed on Nov. 14 that its board of directors had authorized the effort. Executives will explore the option over the next several months, after which it will make a final recommendation to the board (Morgan-Stanley will assist).
Assuming the board grants approval, a spin-off will likely take place by the end of the 2014 third quarter, Kimberly-Clark said. Robert Abernathy, a Kimberly-Clark group president would become CEO of the new enterprise if it happens.
Why pursue a spin-off now? Kimberly-Clark Chairman and CEO Thomas Falk said in a statement that the company's healthcare arm doesn't necessarily have the same strategic fit with the overall company that it used to.
"While [Kimberly-Clark Health Care] has been part of our company since the 1970s, its strategic fit and growth priorities have changed over time and we now think that pursuing a spin-off makes sense for our shareholders," Falk explained.
Kimberly-Clark Health Care focuses on surgical and infection prevention products. Beyond closed suction catheters, pain pumps and enteral feeding tubes, it also produces products such as sterilization wrap, face masks, surgical drapes and gowns. The company sells these items under both the Kimberly-Clark and ON-Q brand names, it said.
Ali Dibadj, an analyst with Sanford C. Bernstein & Co., told Bloomberg via email that a spin-off would make sense because "the business has been very volatile" for Kimberly-Clark for a long time.
"We had been questioning if they know how to run the business well," he is quoted as saying.
Kimberly-Clark's healthcare arm produced 7.7% of its $21.1 billion in sales in 2012, Bloomberg noted. The company's stock traded at $110.05 early on Nov. 15, up less than half a percent.
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