Medtronic Is Separating Its Diabetes Business - Good News For Investors

Medtronic plc MDT announced on May 21 its plans to separate its Diabetes business into a separate, publicly traded company. The separation will occur via a two step transaction – an initial minority IPO carve-out followed by a split-off of the remaining stake. The separation will be tax-free for the shareholders and is expected to be completed in the next 18 months.

The separation comes as Medtronic focuses on higher-margin, faster-growing businesses such as pulsed field ablation and renal denervation. The Diabetes segment, which contributed $2.75 billion or 8% of FY2025 revenue, has lagged behind peers in growth and profitability, facing stiff competition from companies like Dexcom (DXCM), Abbott (ABT), and Tandem Diabetes Care (TNDM).

Strategic Rationale

Diabetes business is predominantly B2C, while Medtronic operates mainly in the B2B space. This implies that both businesses sell different types of products to different types of customers. As such, there are limited synergies between the businesses which justify the argument for separation.

With the spin-off, the diabetes unit, dubbed "SpinCo," will gain operational autonomy and flexibility to scale up R&D and commercial efforts.

Valuation
Despite past underperformance, the Diabetes business is showing signs of a turnaround, growing 10.7% year-over-year in FY2025. GSBR Research estimates the standalone DiabetesCo could be valued between $8 billion and $11 billion, depending on market sentiment and growth execution.

Medtronic's core business – excluding Diabetes – generated nearly $31 billion in FY2025 revenue, and are characterized by higher margins. Post spin, the portfolio will become even more focused on high margin growth markets such as pulse (PFA) and renal denervation. This is expected to expand operating margins by 100 bps.

Bottom line: The diabetes spin-off will unlock value for both Medtronic and the SpinCo. Medtronic (ex-Diabetes) will become a higher-margin company. The spin-off could also trigger a re-rating of Medtronic shares, as investors reassess its streamlined profile. Meanwhile, the diabetes business will gain greater autonomy and flexibility to aggressively invest in its innovation pipeline. The Diabetes business could trade in the range of 3-4x P/S multiple and as such could potentially be valued between $8-$11 billion.