Kimberly-Clark Set to Spin Off Medical Device Business

Irving, Texas-based Kimberly-Clark Corp., famous for such consumer hygiene brands as Kleenex, Scott tissue, Huggies diapers and Depend adult undergarments, is planning to spin off its healthcare unit to create a standalone company. Quite a few companies in the healthcare technology space have done this recently to give their disparate businesses greater focus and room for growth, including Covidien (which spun off its pharmaceutical business from its larger medical device holdings) and Abbott Labs (which separated its research-based pharma unit into a separate entity call AbbVie).

The company’s healthcare division, K-C Health Care, makes surgical and infection prevention products, as well as medical devices in the areas of pain management, respiratory and digestive health. The division has approximately $1.6 billion in net sales last year.

“While K-C 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,” said Chairman and Chief Executive Officer Thomas J. Falk. “This move would allow K-C Health Care to optimize its performance and flexibility to pursue its own value-creation opportunities. A spin-off would also allow us to further sharpen our focus on our consumer and K-C Professional brands.  This announcement is further evidence of our focus on creating shareholder value and how we use portfolio management to run our company.”   

Robert E. Abernathy, currently Kimberly-Clark’s group president of Europe, Global Nonwovens, and Continuous Improvement and Sustainability, will become CEO of the new healthcare company. Abernathy joined Kimberly-Clark in 1982 and has held senior management positions throughout the company, including having overall responsibility for K-C Health Care from 1997 to early 2004.  Joanne B. Bauer will continue as Kimberly-Clark’s president of Global Health Care. She will work closely with Abernathy on separation planning and retire when the spin-off is completed, according to the company.

“Robert is a seasoned executive with a long track record of success and I’m confident he will be a terrific leader of the new company,” said Falk.  “He is excited about working with the many talented individuals on the health care team to create shareholder value as a stand-alone company.”

Management will continue to analyze a potential spin-off and expects to make a final recommendation to the board of directors in the next several months.  If the board approves a spin-off, a transaction would likely be completed by the end of the third quarter of 2014.
The company expects that the spin-off would be in the form of a tax-free distribution of 100 percent of the new company’s common stock to Kimberly-Clark shareholders.  Morgan Stanley has been retained to assist Kimberly-Clark in the pursuit of the spin-off.

According to the company, K-C Health Care has the number one or number two market position in several product categories in the United States, including sterilization wrap, face masks, surgical drapes and gowns, closed suction catheters, pain pumps and enteral feeding tubes. Products are sold primarily under the Kimberly-Clark and ON-Q brand names.

K-C Health Care’s sales are 70 percent in North America and most of the rest in Europe and Asia. Total net sales are split approximately 70 percent surgical and infection prevention products and 30 percent medical devices.  The business had more than 16,000 employees at the end of 2012, with a large majority located in low-cost manufacturing operations in Latin America and Asia.  Business unit headquarters are in Roswell, Ga.