Starboard demands Becton Dickinson to split biosciences unit

In recent months, activist investor Starboard has taken a significant position in Becton Dickinson, urging the company to divest its life sciences business. This call comes as the company already plans to undertake such a separation. Becton Dickinson operates two distinct business units — MedTech and Life Sciences — that have differing growth prospects. MedTech has been experiencing faster growth, generating $15.1 billion in revenue and $6.7 billion in earnings before interest, taxes, depreciation, and amortization (EBITDA). In contrast, the Life Sciences unit contributes substantially less, with $5.2 billion in revenue and $2.0 billion in EBITDA. The disparity in performance has raised questions about the justification for maintaining both units under one corporate umbrella. The growth rates of these businesses are quite different, with MedTech growing at a mid-single-digit pace while Life Sciences has a low-single-digit growth rate. Valuation multiples further underscore this divergence: MedTech is valued between 13 and 14 times EBITDA, whereas Life Sciences is assessed at over 20 times EBITDA. This implies a stark contrast in how the market perceives the stability and growth potential of both units, with Life Sciences being seen as more structurally resilient against factors like cyclicality and reimbursement pressure. At the current valuation of the entire company, which trades at 16.8 times EBITDA, the life sciences division is seen as underperforming, potentially leading to a significant loss in value for stakeholders. Market reports suggest a potential valuation of around $30 billion for Life Sciences, which is considered slightly below the expected 20-times EBITDA multiple it could achieve. The separation of these businesses could benefit management by allowing them to concentrate resources and motivate through shared success, expanding appeal to investors focused on pure-play companies. While shareholder activism is common, particularly in the case of Starboard, the outcome here is unique as Becton Dickinson seems to be responding positively to the call for separation. The founder and president of 13D Monitor, Ken Squire, highlights the trend of companies benefiting from such structural changes. The action to split could not only unlock shareholder value but also improve clarity in operations, governance, and investor focus moving forward. The anticipated separation marks a pivotal moment in Becton Dickinson's corporate strategy, addressing the need for operational efficiencies amid diverse growth trajectories.