US exit agitation - Sonic Healthcare: New CEO Jim Newcombe faces pressure to improve transparency
.........
Moore and other shareholders want Newcombe to get on top of two things.
The first is realising the cost synergies from the company’s recent acquisitions, particularly in Switzerland. Last year, the company also agreed to buy one of Germany’s biggest medical laboratory groups for $700 million.
The second task is reviewing the company’s huge US business, where returns are poor. Some investors want Newcombe to consider selling the business to one of its big competitors, potentially returning billions of dollars to shareholders and building a war chest for acquisitions in markets where it is stronger.
“They have been in the US over 20 years. They have spent over $2.5 billion building a business there, and it has been a drag on their organic growth for quite a long time,” said Moore.
“The reality is, it is the only division where they are the clear No. 3. In every other region they are No. 1.”
Sonic competes in the US with giants Quest Diagnostics and LabCorp.
“Even though the returns are poor, if they were to sell it, they would get a very good price from either Quest or LabCorp because the synergies would be significant,” said Moore.
Other shareholders were also open to the idea.
“With any new CEO, there is an opportunity to revisit every region they operate,” said Anna Milne, a deputy portfolio manager at Wilson Asset Management.
“The US has likely been the largest underperformer, so that does naturally beg the question: should they be there longer term?”
Sonic has been trimming and adjusting its US business, with losses in Alabama and acquisitions, such as Cairo Diagnostics, this year expanding its haematology oncology testing business.
With the US a core business accounting for more than 20 per cent of revenue, Newcombe may not be willing to sell.
While he is not too well known to investors at this stage, Newcombe has led one of Sonic’s largest labs globally, Douglass Hanly Moir, for some time.
Shareholders such as Milne like that he has indicated he would continue to drive a culture of medical leadership in the company. (Goldschmidt’s gripe was that many non-doctor healthcare chief executives did not understand their businesses properly.)
At the company’s annual meeting in November, Newcombe said he was focused on targeted acquisitions and increasing earnings per share and return on invested capital.
He also owns a stake in the company, with share options exercisable between $24 and $32.
“Winning market trust will require clear communication and consistent delivery on the promised synergies and earnings uplift from the European acquisitions,” said Milne.
Disclosure also topped investors’ wish lists.
“What I’m looking for is a bit more transparency,” said Jun Bei Liu, founder and fund manager at Ten Cap, which owns Sonic shares.
“The company run it like a private business, the communication is often not very clear.
“It’s been a growth company for many years, but more recently this has been more challenging. As such a large company listed on the ASX, you need to be more transparent.”
She also questioned the nature of Goldschmidt’s abrupt departure after 32 years. There was no talk of retiring when asked about it at the full-year results in August.
“I always felt Sonic was Colin’s baby. I thought he would never leave. It felt like there was a bit of an unhappy ending,” she said.
While Sonic has lost some of its former glory, there is little criticism about Goldschmidt’s achievements.
The company is unrecognisable from the one he joined in 1993 when it was a minnow with $33 million in revenues and $17 million in assets.
In fiscal 2025, the company posted $9.6 billion in revenue and its assets were worth $16 billion.
Goldschmidt was the longest-serving chief executive on the ASX50.
“There is no doubt over 30-plus years he has built a great platform,” said Moore. “Dominant market positions in Australia, Germany, Switzerland and the US. If you had to give him a black mark, it would be the US.
