By Noor Zainab Hussain and Shashwat Awasthi
(Reuters) - British engineer Smiths Group <SMIN.L> plans to spin off its healthcare business to focus on industrial technology, two months after a 7 billion pound ($9.1 billion) deal to merge it with U.S.-based ICU Medical <ICUI.O> collapsed.
Smiths Medical, which has 8,050 employees, has been hit by delays in product launches, a loss of certifications under new regulations and losing two contracts in the United States.
Investors welcomed the move, which Smiths Group said on Wednesday will allow it to focus on growing as an industrial technology firm, with its shares up 4.9 percent at 1,379 pence at 0855 GMT, topping London's bluechip index <.FTSE>.
"Following our focus on operational improvements and increased investment, we believe it is now time to prepare the separation of Smiths Medical from the rest of the group," Chief Executive Andy Reynolds said in a statement.
Talks to merge Smiths Medical, which makes products including respiratory devices and catheters, with ICU Medical had ended because the parties were unable to agree terms.
Smiths Group, whose five businesses employ 22,000 people, has a market capitalisation of around 5.16 billion pounds.
"What exactly this means is unclear – presumably, shareholders still own the business and this is just preparing for a clean break if a buyer comes along. Whether this is good news or not depends on the divorce terms, or what a buyer is prepared to pay," Investec said in a note.
The company, which traces its roots back to a jewellery shop in south London in 1851, said in September that the suspension of some of its medical products in Europe would hit its annual profit.
"The planned separation of Medical will remove the business that has most often been a stumbling block," Jefferies analyst Sandy Morris said.
Smiths Medical accounts for more than a quarter of total revenue at Smiths Group. But its contribution fell 2 percent to 885 million pounds for the year ended July 31.
"We believe this is a good move as Medical has been a perennial drag on group performance and should unlock value," Liberum analyst Ryan Gregory said.
Smiths Group, which also makes airport baggage scanners, bomb detectors and industrial products, said that plans for the separation of Smiths Medical were at an early stage and gave no details on what form it would take.
The company also said its first-quarter underlying revenue had fallen 1 percent.
(Reporting by Shashwat Awasthi and Noor Zainab Hussain and additional reporting by Tanishaa Nadkar in Bengaluru; Editing by Sunil Nair and Alexander Smith)