Smith & Nephew shares jump as activist investor buys stake

Cevian has become the medical equipment firm’s second biggest shareholder after snapping up a 5% holding.

The medical equipment firm makes knee and hip replacements (Stuart Johnson/University of Bristol/PA) (PA Media)

Shares in knee and hip replacement maker Smith & Nephew have surged after activist investor Cevian revealed it has taken a stake in the group.

Cevian is now the medical equipment firm’s second biggest shareholder after snapping up a 5% holding, sending shares in Smith & Nephew jumping more than 7% on Thursday.

Swedish group Cevian is renowned for taking stakes in firms and then pressing for change and to boost returns to investors.

FTSE 100-listed Smith & Nephew has seen its shares come under pressure since hitting an all-time high in 2020 as it has struggled to grow its profitability in the face of soaring costs and delays to operations following the pandemic.

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 realise this potential

Friederike Helfer, Cevian Capital

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

“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 realise this potential.”

A spokesman for Smith & Nephew said the firm would “have an open dialogue with our shareholders and will continue to engage with Cevian, as we do with all of our shareholders”.

Cevian’s other high-profile investments include Irish building materials firm CRH, which switched its primary London listing to New York last year.

The positive share price reaction to Cevian taking a position in Smith & Nephew demonstrates the market thinks an outside catalyst for a shake-up of the business would be no bad thing

Russ Mould, AJ Bell investment director

It is also an investor in Pearson and last year sold down its stake in insurance giant Aviva, having pushed for increased investor returns at the group.

AJ Bell investment director Russ Mould said: “Cevian has previously taken positions in UBS, Vodafone and Aviva in an attempt to force change and the case for doing so at Smith & Nephew is presented by a near-40% decline in the share price over the last five years.

“The positive share price reaction to Cevian taking a position in Smith & Nephew demonstrates the market thinks an outside catalyst for a shake-up of the business would be no bad thing.”

He added: “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.

“It could also push for a rationalisation of the company’s portfolio, which encompasses sports medicine and wound care alongside orthopaedics.”