Abbott Laboratories(ABT) is joining the parade and splitting itself into two. Like many other recent spinners, Abbott is a spinoff veteran, having spun off Hospira(HSP) in 2004. Though at times, even recently, Hospira has traded much higher, on the whole, returns for the two pieces 7 years later have been unimpressive. Hospira is now barely up 10%, and Abbott nearly 30%. Now, Abbott wants to do it again.
In an announcement on October 19, the company unveiled plans to split into two, similar-sized, large companies, one focusing on “research-based pharmaceuticals”, and the other on “diversified medical products”. The research-based pharmaceutical business, which has not yet been named,
… has nearly $18 billion in annual revenue today and will have a sustainable portfolio of market-leading brands, including Humira, Lupron, Synagis, Kaletra, Creon and Synthroid. An attractive pipeline of innovative R&D assets – in important specialty therapeutic areas such as Hepatitis C, immunology, chronic kidney disease, women’s health, oncology and neuroscience – will help drive future growth. [It] will focus on select specialty products with breakthrough innovation that serve patient needs in some of the most critical medical areas, such as immunology, Multiple Sclerosis, chronic kidney disease, Hepatitis C, women’s health and oncology. This company will continue to generate the majority of its revenue from developed markets. The company’s sustainable portfolio and advancing pipeline, including established biologics expertise, have the potential to deliver accelerating revenue growth in the coming years.
The diversified medical products business, which will retain the Abbott name,
… has approximately $22 billion in annual revenue today and a durable mix of products balanced across four major businesses. It will continue to target double-digit ongoing earnings-per-share growth, with opportunities for geographic expansion, particularly in high-growth emerging markets. The company will have an extensive, broad-based pipeline of new products and technologies as well as opportunities for significant margin expansion. [It] will be one of the largest and fastest growing investment opportunities in medical products with strong sales and ongoing earnings-per-share growth and a large, broad mix of products addressing many essential areas of health care. It will generate nearly 40 percent of its sales in high-growth emerging markets, with further expansion expected in the coming years.
Miles D. White will remain CEO of Abbott, the diversified medical product business, while Richard A. Gonzalez will become CEO of the new research-based company. While spinoffs are certainly trendy right now, there doesn’t seem to be a lot of rationale for this deal. We’re left with two similarly-sized, profitable spins. Perhaps as details emerge, the value proposition will become clearer, but as it stands now, there doesn’t seem to see much benefit to the spin. Shareholders can only hope that this is more profitable than Abbott’s foray into the world of spinoffs 7 years ago.
- Abbott Execs Predict Big Growth for Pharma Spinoff (fool.com)
- Abbott Laboratories to Split Into 2 Companies (biospace.com)
- Prescriptions Blog: Abbott Plans to Split Into Two Companies (prescriptions.blogs.nytimes.com)
- The Abbott Break-Up Seems To Make Sense (ABT, BIIB, BMY) (247wallst.com)