Baxter International Inc.
) revealed that it will split-up its biopharmaceuticals and
medical device segments into two independent companies in order
to put greater management focus on the two businesses,
effectively commercialize product offerings, efficiently allocate
resources to high growth areas, and bring flexibility in deciding
on growth and investment strategies.
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Following the announcement, shares of BAX reached new 52-week
high of $75.68 to close at $72.80 on the same day.
BAX expects to complete splitting up the business in mid-2015.
The transaction will take the form of a tax-free distribution to
the company's shareholders of a new publicly traded stock in the
new biopharmaceuticals company.
BAX expects to incur one-time charges due to the split up during
the reporting periods preceding the separation. However, the
company does not expect it to impact the financial guidance for
The Two Businesses
BAX's biopharmaceuticals/bioscience division includes recombinant
and plasma-based proteins to treat hemophilia and other bleeding
disorders; plasma-based therapies to treat immune deficiencies,
alpha-1 antitrypsin deficiency, burns and shock, and other
chronic and acute blood-related conditions. It contributed $6.6
billion or 43.0% to overall revenues in 2013.
Ludwig N. Hantson - the current president of BioScience division
- will be named as the CEO of the new biopharmaceuticals company.
Baxter director Wayne T. Hockmeyer will serve as nonexecutive
chairman of the new unit.
BAX's medical products division manufactures intravenous (IV)
solutions and administration sets, premixed drugs and
drug-reconstitution systems, pre-filled vials and syringes for
injectable drugs, IV nutrition products, infusion pumps, and
The medical products business contributed $8.7 million or 57% to
BAX's overall revenues in 2013. The business will continue to
integrate the $4 billion acquisition of Swedish dialysis maker
Gambro AB, completed last September, which complements its
existing renal therapies franchise.
BAX's current CEO and chairman, Robert L. Parkinson Jr., will
lead the medical products business in the future, retaining its
Following the announcement, Moody's Investors Service - the
credit rating arm of
) - downgraded its outlook on the company to negative from
stable, while keeping its A3 and Prime-2 ratings intact. The
rating agency believes that the split-up will significantly hurt
Apart from losing economies of scale and business diversity,
Moody's believes separating the key biopharmaceuticals division
would significantly impact the company's margin as it generates
over half of the company's profitability due to the presence of
key pipeline products, despite a lower contribution to overall
revenues compared to the other medical product division.
Recent Split-up in Healthcare
In early 2013,
) spun off its drug business into the new company, AbbVie.
Abbott's remaining businesses market nutritional formula, generic
drugs, medical implants and diagnostics.
Recently, there was a rumor that the biggest drug maker in the
) may split up its businesses into two or three companies.
However, Pfizer negated the rumor, saying that it is not looking
for any split-up until for a couple of years in the future.
Currently, Baxter retains a Zacks Rank #3 (Hold).