Kimberly-Clark Mulls Spinoff of Health-Care Operations

Kimberly-Clark Corp. (KMB) is mulling a spinoff of its health-care business, potentially unloading a division that generates about $1.6 billion in annual sales but represents the consumer-products giant's smallest business.

The division sells surgical and infection prevention products for the operating room and a portfolio of medical devices. Products are primarily sold under the Kimberly-Clark and ON-Q brand names.

"While K-C Health Care has been part of our company since the 1970s, its strategic fit and growth priorities have changed over time and we now think that pursuing a spinoff makes sense for our shareholders," Chairman and Chief Executive Thomas J. Falk said.

Investors cheered the news, sending shares up 6.6% to $116.90 in after-hours trading.

Kimberly-Clark -- the maker of Huggies diapers, Kleenex tissue and Cottonelle toilet maker -- wouldn't be the first consumer products giant to mull such a move. Kraft Foods Group Inc. (KRFT) recently spun off its global snacks business to create Mondelez International Inc. (MDLZ), while activist shareholder Nelson Peltz earlier this year urged PepsiCo Inc. (PEP) to spin off its underperforming beverage business and acquire Mondelez.

Kimberly-Clark said if a spinoff were to occur, the transaction would likely be completed by the end of the third quarter next year. The company expects the deal would be in the form of a tax-free distribution of the new company's stock to existing Kimberly-Clark shareholders.

The health-care division generated $1.62 billion in sales in 2012, rising 1% from the prior year, but made up a small piece of the total $21.1 billion. That growth underperformed the company's largest business segment, personal care, but was better than the sales declines posted by the consumer tissue and K-C professional divisions.

The health-care division derives about 70% of sales from North America, and most of the rest in Europe and Asia. The business had more than 16,000 employees at the end of 2012, making up about 28% of Kimberly-Clark's total at the time.

If the spinoff were to occur, current Kimberly-Clark executive Robert Abernathy would become chief executive of the new health-care company. Mr. Abernathy has held various senior management positions since joining the company in 1982.

Morgan Stanley (MS) has been retained to assist the company as it mulls the transaction. Kimberly-Clark intends to hold a news conference on Friday to discuss the potential spinoff.

Write to John Kell at [e-mail]

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