Smith & Nephew dumps costly US purchase: Disposal of Ioptex lens business will lead to pounds 148m exceptional charge against profits
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Your support makes all the difference.SMITH & NEPHEW is taking a pounds 148m exceptional charge against profits following the sale of Ioptex, its US-based intraocular lens business, to Allergan Corporation of the US for pounds 11m in cash.
In its least successful acquisition, the UK healthcare group paid dollars 236m ( pounds 154m) for Ioptex in 1989, just a year before the United States government ordered massive cuts in the reimbursement price of intraocular lenses, which are used in cataract operations. Its move was in response to concern about profiteering by eye surgeons.
Prices of intraocular lenses subsequently plummeted by 60 per cent from more than dollars 400 each to less than dollars 170, severely reducing Ioptex's profitability and value. In 1993, Ioptex made profits of pounds 200,000 on sales of pounds 27m but fell into losses of pounds 1m in the first half of this year.
'The management has done heroically to hold the business together. Allergan is the leader in the field and will be able to make more of Ioptex than us,' John Robinson, chief executive of Smith & Nephew, said.
The exceptional charge of pounds 148m is made up of a pounds 141m write- back of goodwill previously written off to reserves, together with a pounds 7m item to cover the shortfall between the pounds 11m disposal price and Ioptex's net assets of pounds 18m.
The exceptional charge will be taken in Smith & Nephew's interim results for the six months to 2 July, out on Thursday. Since the goodwill had already been written off against reserves in 1989 on acquisition the only impact on Smith & Nephew's shareholders' funds is the pounds 7m deficit on net assets.
Since interest earnings on the cash disposal proceeds will replace losses at Ioptex, the deal is expected to enhance earnings modestly. Smith & Nephew shares rose by 0.5p to 159p.
Last December, Smith & Nephew sold its UK ophthalmic solutions business to Laboratiore Chauvin for pounds 18m. The sale of Ioptex marks the company's departure from the eye-care market.
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