Abbott Labs Plans to Split Into Two Companies

Big news today for Abbott Labs ($ABT). The company reported third-quarter earnings of $1.18 per share which was one penny better than estimates, and 13 cents more than last year’s third quarter.

Worldwide sales increased 13.2% to $9.8 billion. The gross margin ratio was 60.4% which was higher than ABT’s guidance. Abbott also narrowed its full-year guidance to $4.64 – $4.66 per share which implies a Q4 range of $1.43 – $1.45 per share. The previous forecast was $4.58 – $4.68.

But that wasn’t the big news. The big story is that Abbott is planning to split itself into two publicly traded companies, one in diversified medical products and the other in research-based pharmaceuticals.

Abbott Laboratories, long known for selling a mix of drugs, medical implants and baby formula, said Wednesday it will spin off its branded drug business and become two separate companies with more distinct identities.

The split-up, announced Wednesday marks a dramatic change in strategy for the 123-year old company, which sells a broad range of products from stents to arthritis drugs to contact lens solution. While many pharmaceutical companies weathered losses as the patents on their blockbuster drugs expired, Abbott has continued to post double-digit sales growth, chiefly because of its anti-inflammatory drug Humira. The injectable drug posted sales of $6.5 billion last year.

But Abbott’s reliance on the drug has been a concern for investors, overshadowing the company’s performance across other businesses. Humira loses patent protection in 2016 and the company has largely been unsuccessful in developing new therapies to replace the drug.

CEO Miles White suggested Wednesday the split is about crafting two companies with clearer messages for investors.

“What happened here is the pharma piece got so big, and is so different, that these two investments make sense separately, and both are of a critical mass and size that they have great sustainability going forward as independent companies,” White told analyst on a teleconference call.

I like this plan. You often get a great bargain when good companies split themselves up. Plus, this split makes a lot of sense.

The plan is to have this as a tax-free distribution to shareholders. The company has said that it wants to do this by the end of next year.

Posted by on October 19th, 2011 at 11:48 am


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