AbbVie(ABBV) is one of the most massive spinoffs we’ve seen, so every piece of news or analysis is of interest to us. Hence it was with great interest that we noted that Seeking Alpha published “AbbVie’s Shares Are More Appealing Than Abbott’s Following The Spin-Off” this morning. We were pleased to see author Robert Broens put a stake in the ground and make a clear suggestion that “Following the spin-off, the risk-reward ratio for AbbVie’s shares is far better than Abbott at the moment.” One big problem- the data on which his thesis hinges is wrong. Very wrong.
Broens claims that “as a result of the split, AbbVie has been given roughly $4.6 billion in cash, equivalents and short-term investments and it operates without any debt,” and that “shares of AbbVie trade at 2.8 times 2012 revenues and merely 10 times earnings. Furthermore, the company pays a 4.6% dividend yield and operates with a strong balance sheet.”
One problem – AbbVie has significant net debt. According to the final S-1, AbbVie
has issued $14.7 billion in senior notes, including approximately $3.0 billion in principal amount of certain senior notes issued to Abbott in partial consideration for the transfer of assets from Abbott to AbbVie, and expects to incur an additional $1 billion in short-term borrowings, as contemplated in the sections captioned “Unaudited Pro Forma Combined Financial Data” and “Description of Material Indebtedness.” AbbVie used part of the net proceeds from the sale of the senior notes (other than the senior notes issued to Abbott) to finance the payment of a $10.2 billion distribution to Abbott, as required by the terms of the separation agreement. Although AbbVie will have approximately $7.2 billion in cash and short-term investments in total following the distribution…
Regarding Abbott(ABT), Broens states “the company pays a quarterly dividend of just 1.7% as it has to support an almost $10 billion net debt position.” Except that the company’s presentation states that the post spin expectation is a net debt position of $2.5 billion, as it received a ton of cash from AbbVie.
AbbVie still has adequate cash flow to cover its debt, its generous dividend, and the development of its pipeline, but we would be very wary of relying on an analysis that got it wrong by over $15 billion. Readers would be advised to look at other analyses of the companies which are more robust, perhaps this one. Also, the article on Seeking Alpha ought to be immediately retracted and corrected. This is not a case of a difference of opinion, or a small factual error, but of the key data which forms the basis of the article being plain wrong. We are sure that the Seeking Alpha editors will do the right thing, correct this, and think long and hard about what level of fact checking is necessary to protect the reputation of their site.
UPDATE(1/8/2013 9:41AM Eastern): Overnight, Seeking Alpha silently updated the article, with no indication that it had been edited. See our response here.
Disclosure: The author holds no position in any stock mentioned
- AbbVie Spin From Abbott Complete Today – Discussion Thread (stockspinoffs.com)
- Record Debt Sale Preps AbbVie For January Spin From Abbott Laboratories (stockspinoffs.com)