Smiths Group shares hit record high as activist investor pushes for sale

(Reuters) - U.S. activist investor Engine Capital, which owns about a 2% stake in Smiths Group, has called for the sale of the British engineering firm or parts of it to maximise shareholder value, sending its shares to a record high on Friday.

The over 170-year-old company, which has a diverse portfolio but is best known for its baggage-screening kit and explosive detectors which are a common sight at airports, operates in 50 countries. It has a market capitalization of 6.05 billion pounds ($7.4 billion), according to LSEG data.

"We believe that Smiths has significant value that is currently unrealised due to its conglomerate structure, and that it is time for the Board to announce a strategic alternatives process to maximize value for shareholders," Engine Capital said in a letter.

Smiths, which has upgraded its revenue forecast twice in the past three months, said it welcomed the feedback from shareholders and added that it continues to focus on creating value for investors.

Shares in the group were up as much as 4.7% to 1,848 pence in early trade.

"Smiths Group has seen several guidance upgrades recently, which have failed to materially move the shares," Berenberg analyst Andrew Simms said in a note.

Engine Capital's letter comes days after Smiths Group named the president of its Interconnect division as its new finance chief, succeeding Clare Scherrer who is retiring at the end of January.

It proposed two alternatives: selling the entire company or parts of it, or spinning off John Crane - its engineered sealing solutions provider in the United States - and selling other businesses.

A close to 2% stake would make Engine Capital among the top 10 shareholders of Smiths, according to LSEG data.

Simms said that shareholder activism could increase through 2025 in response to potential lacklustre performance, especially with other global industrial groups such as industrial giant Honeywell being the target of investors. Elliott Investment Management had pushed for a breakup of Honeywell.

($1 = 0.8205 pounds)

(Reporting by Chandini Monnappa in Bengaluru; Additional reporting by Radhika Anilkumar; Editing by Mrigank Dhaniwala, Eileen Soreng and Emelia Sithole-Matarise)