Medtronic to Spin Off Diabetes Business, Boost Profit Margins by 100 Basis Points

Medtronic, a prominent medical device manufacturer, has announced its plan to separate its diabetes business, which primarily focuses on insulin pumps and other wearable devices, into an independent company. This strategic decision comes alongside the release of its adjusted profit forecast for 2026, which fell short of market expectations. The company aims to streamline its investment portfolio by concentrating on high-profit growth markets, allowing the diabetes business to operate more flexibly and respond to market changes more effectively.

The diabetes business, currently led by Que Dallara, the executive vice president and president, will be spun off into a new independent publicly traded company. Dallara is set to become the CEO of the new entity, which will have over 8,000 employees. This separation is expected to be completed within 18 months through a series of capital market transactions, with the preferred path being an initial public offering (IPO) followed by a subsequent spin-off.

By divesting its diabetes business, Medtronic intends to focus more on its core profitable sectors, including cardiovascular, neuroscience, and surgical solutions. This strategic shift is designed to enhance the company's overall profitability and growth potential. The new diabetes company will operate independently, allowing it to better address the specific needs and challenges of the diabetes market. This move is part of Medtronic's broader strategy to optimize its portfolio and drive long-term value for shareholders.

The new company will be headquartered in Northridge, California, and will include approximately 8,000 employees. Medtronic anticipates that this separation will immediately enhance the company's overall profit margins and increase earnings. The company's statement highlights that, unlike other medical device businesses that primarily serve institutional clients, diabetes devices are mainly sold directly to end consumers, requiring distinct commercial and production strategies. The plan is to complete the separation within the next 18 months through capital market transactions, with a preference for an IPO followed by a spin-off.

Analysts have expressed caution regarding this move. Robbie Marcus, an analyst, noted that the diabetes business has struggled to maintain its current mid-to-high single-digit organic growth and may no longer provide strategic value to the company. This strategic decision is expected to create a more focused Medtronic, allowing it to concentrate on high-growth, high-profit markets with a simplified product portfolio. Simultaneously, it will establish an independent, scaled diabetes leader focused on accelerating innovation and commercializing a complete ecosystem to address intensified insulin management challenges.

Medtronic expects the separation to be completed within 18 months through a series of capital market transactions, with the preferred method being an IPO followed by a spin-off. This process is anticipated to appropriately capitalize the new spun-off company and provide the ability to return Medtronic shares to the market. The separation will include the diabetes business's employees, product portfolio, pipeline, intellectual property, strategic partnerships, and global manufacturing facilities. For U.S. federal income tax purposes, the separation is generally expected to be tax-free for Medtronic shareholders. This move is anticipated to unlock value for Medtronic and its shareholders by creating a new diabetes company shareholder base that better aligns with its financial profile, potentially increasing Medtronic's gross margin, operating margin, and earnings per share (EPS).

The new spun-off company will be a leading, scaled direct-to-consumer diabetes company, the only one to commercialize a complete intensified insulin management ecosystem, allowing people to forget about diabetes and live their best lives. This separation is expected to concentrate the new spun-off company's pipeline and production scale and automation investments, driving success in automated insulin delivery and smart multiple daily injection (MDI) systems, while pushing profit margins higher over time. The independent new spun-off company will have a shareholder base that aligns with its business and financial profile.

Currently, Medtronic's diabetes business employs over 8,000 people globally and is committed to innovation, production, clinical, and quality systems. In the 2025 fiscal year, the diabetes business accounted for 8% of Medtronic's total revenue and 4% of its segment operating profit. Following the separation, Medtronic's adjusted gross margin is expected to increase by approximately 50 basis points, its adjusted operating margin by approximately 100 basis points, and its adjusted earnings per share to increase immediately. This separation is expected to provide the ability to repurchase Medtronic's outstanding shares without reducing cash, thereby increasing earnings per share and reducing Medtronic's dividend obligation, allowing for growth-oriented accretive investments. Medtronic expects its dividend per share to remain unchanged before and after the transaction, with no change in its dividend policy.