Smith & Nephew replaces CEO again

Chief executive Namal Nawana, who joined in May last year, will leave the artificial hip and knee company at the end of the month

Xray of a hip
Smith & Nephew specialises in replacement hips, among other things

Smith & Nephew PLC (LON:SN.) is replacing its chief executive for the second time in 18 months, with rumours of a dispute over pay.

Chief executive Namal Nawana, who joined in May last year, will leave the artificial hip and knee company at the end of the month.

He will be replaced by former Roche Diagnostics boss Roland Diggelmann, who has been on the board as a non-executive since early last year.

Chairman Roberto Quarta said Nawana, who leaves to “pursue other opportunities outside of the UK”, had injected a “new strategy, purpose and culture, and renewed commitment to innovation” to the FTSE 100 group.

As well as stating that S&N continues to see positive momentum across the business, Quarta highlighted Diggelmann’s “leadership qualities” and “excellent track record of delivering results in an innovation-led business”.

When Nawana joined after selling his previous business, Alere, for US$5.3bn to Abbott, it fired up long-running speculation that Smith & Nephew was gearing up for a takeover or looking to break itself up.

Instead, he focused on going on his own acquisition spree along with an overhaul of the leadership team, with the shares up more than a third since he started.

FTSE boss exodus

Nawana's departure, which continues the exodus of FTSE 350 chief executives in recent weeks, saw the shares tumble 8% to 1,686.5p by lunchtime on Monday.

The numbers of exiting CEOs is almost enough for an 11-a-side football match, snarked Russ Mould at AJ Bell, though the reasons at S&N are slightly different to other recently headless blue chips.

“There appears to be a pretty simple reason Nawana is leaving – pay," Mould added. "It became apparent over the summer that the company was looking for ways to increase its head honcho’s remuneration with apparent discussions about a move to a US listing to escape an increasing backlash in the UK towards excessive executive pay.

He said the fear for investors will be that "this revamp of the business will be derailed by Nawana’s departure despite efforts to allay these concerns".

“Diggelmann faces a tricky task of balancing the need for continuity with a likely ambition to bring his own ideas to the role,” Mould said.

Broker Shore Capital said it believed Nawana had "done a good job at S&N by starting to implement an effective new commercial strategy, which was starting to see results", so was "surprised" by the announcement and said it introduced a "degree of uncertainty in a crucial period for S&N as it attempts to firmly embed the new commercial model and return to market growth rates following a 10-year period of below market growth".

The broker added: "We continue to see M&A risk for S&N as we believe the M&A space is competitive, assets are overvalued and that M&A is required to achieve above-market growth. We will be interested to see how the new CEO views the M&A landscape and whether there is appetite for larger deals, which we believe greatly increases the risk of overpaying and could provide a degree of integration risk."

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