Smith & Nephew shares surge on activist Cevian building stake

By Yadarisa Shabong

(Reuters) -Shares in Smith & Nephew rose 7% to the top of the FTSE 100 index on Thursday after activist investor Cevian Capital disclosed a 5% stake in the British medical equipment maker, a filing showed.

Cevian, whose newly disclosed holding would make it Smith & Nephew's second largest shareholder according to LSEG data, is known for taking stakes in companies and calling for change.

Smith & Nephew, which makes orthopaedic implants, wound dressings and other surgical materials, has lost more than 50% of its stock value from an all-time high hit in February 2020.

Pandemic lockdowns that led to surgery delays and supply-related disruptions from COVID times, as well as high raw material costs due to the Russia-Ukraine conflict, have taken a toll on the company, which has struggled to grow its margins.

"Smith & Nephew owns fundamentally attractive businesses in structurally growing markets, but the company has not generated shareholder value for many years," Friederike Helfer, a partner at Cevian Capital, said in a statement.

"Cevian sees the potential to create significant long-term value by improving the operating performance of the company’s businesses. We have high expectations for the board and management to realize this potential," he added.

Smith & Nephew's FTSE 100 shares have struggled to eke out yearly gains for the past four years.

The group said it would continue to engage with Cevian "as we do with all of our shareholders", without providing further details as the conversations are private.

In 2022, it started a transformation plan that aimed to grow its hip and knee implant, wound management and sports medicines businesses while expanding margins.

"Cevian is likely to hold management's feet to the fire and may look for more ambitious targets than set out under the existing improvement plan," AJ Bell analyst Russ Mould said.

"It could also push for a rationalisation of the company’s portfolio."

Cevian is No.3 shareholder in Irish building materials firm CRH, which last year ditched its primary London listing in favour of New York.

It is also the top shareholder in global education group Pearson, which had reportedly faced investor pressure last year to move its listing.

Cevian sold down its entire stake in British insurer Aviva last year and ended its campaign to drive up investor payouts at the FSTE 100 company.

Smith & Nephew shares were up 7% to 1,057 pence by 1016 GMT.

(Reporting by Yadarisa Shabong in Bengaluru; Editing by Janane Venkatraman, Nivedita Bhattacharjee and Jan Harvey)