The German engineering giant cites a changing healthcare industry as the reason for spinoff.

Nancy Crotti

Siemens AG is planning an initial public offering for its healthcare business, in a move that sent its stock price higher.

The Siemens Healthineers? business, which Siemens has been operating as a separately managed company since 2014, saw revenue growth driven by sales in Asia and the Americas in the fourth quarter of 2016, CEO Joe Kaeser said in an earnings call transcribed by Seeking Alpha.

Its diagnostic imaging business performed well and contributed to the company's overall stronger profitability, Kaeser said.

Siemens' stock rose from EUR106.20 to EUR110.50 (about $116 to $120) per share on news of the IPO. 

Analysts are predicting that Siemens' healthcare business will be bolstered by the incoming Trump administration's plan to repeal President Obama's Affordable Care Act, according to a report by The Street. The U.S. accounts for more than half of Healthineers's business, the report noted.

The German engineering giant said it decided to list the business, renamed Siemens Healthineers earlier this year, because of the changing healthcare industry. There's been a move from device companies simply selling products to actually solving hospital system-wide challenges as fee-for-service moves to managed outcome-based health. Listing its healthcare business will strengthen Siemens and build its position in identified growth fields while providing for strategic flexibility and capital allocation in light of the changing healthcare market, the company said.

The move puts Siemens at odds with global rivals GE Healthcare and Royal Philips, which have been focusing more intently on their healthcare businesses as part of their overall strategies. GE spun off its consumer finance business and Philips jettisoned its lighting business to focus on healthcare.

"Healthcare is one of our strongest businesses with sustainable high cash flow and excellent margin profile in an attractive sustainably growing market," Kaeser said, noting that it has enjoyed a 4-point increase in profit margin over the past five years, with revenue up nearly 3% in the same time period.

"We will invest in areas such as molecular diagnostics, advanced directives and services including consulting as well as data-driven services," he continued. "Siemens is committed to remain a long-term majority shareholder of the Healthineer business. We are convinced that we can even further expand our leading position."

In addition to strengthening its medical imaging and laboratory diagnostics business, Siemens previously announced a strategy of providing new offerings including managed services, consulting, and digital services.

Chris Newmarker is senior editor of Qmed. Follow him on Twitter at @newmarker.

Like what you're reading? Subscribe to our daily e-newsletter.

[Siemens Heathineers logo courtesy of Siemens]