Baxter International Inc. (NYSE: BAX) Stock Up 10% on News of Split

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BAXTER INTERNATIONA
NYSE: BAX
Nov 26 12:02 PM
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Price: 72.37 | Ch: -0.07 (-0.1%)

Baxter International Inc. (NYSE: BAX) stock was boosted nearly 10% to a 52-week high of $75.68 intraday Thursday after the healthcare giant announced it's splitting into two separate companies.

The two new entities will include one focused on developing and marketing biopharmaceuticals and one concentrated on medical products. The split, expected to be completed by mid-2015, will be a tax-free distribution to Baxter shareholders.

Current Baxter Chief Executive Officer Robert L. Parkinson Jr. will be chairman and chief executive officer of the medical products company, which will maintain the Baxter International name. Ludwig N. Hantson, president of the bioscience unit, will become CEO of the biopharmaceuticals company, to be named at a later date.

Both companies will be based in northern Illinois.

Among expected benefits in breaking into two are greater management focus on the separate franchises, the ability to more effectively commercialize up-and-coming and current offerings, and the flexibility to chase respective growth.

Parkinson explained in a statement:

"Baxter has an established history of executing successful spinoffs, and we have continued to evaluate the separation of these two businesses in response to diverging business dynamics and the rapidly changing macro-environment. This decision underscores Baxter's commitment to ensuring its long-term strategic priorities remain aligned with shareholders' best interests, while improving our competitive position and performance, enhancing operational, commercial and scientific effectiveness and creating value for patients, healthcare providers, and other key stakeholders."

Baxter International (NYSE: BAX): Benefits of Breaking Up

Baxter's biopharmaceutical business includes treatments for bleeding disorders, such as hemophilia. It also includes blood plasma therapies, aimed at treating immune deficiencies and other blood ailments. Last year, the unit generated roughly $6 billion in revenue.

The medical products business includes a portfolio of intravenous solutions, nutritional therapies, drug delivery systems, anesthetics, and surgery products. It booked more than $9 billion in sales in 2013.

Included in the medical products business is the $4 billion acquisition of Swedish kidney dialysis product maker Gambro AB, announced in December 2012 and completed in September 2013. The deal marked Baxter's biggest acquisition in its 83-year storied history, and it created a kidney dialysis leader.

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The tie-up combined the world's No. 2 (Baxter) maker of dialysis equipment by revenue, with the third largest (Gambro). It also allowed Baxter to round out its kidney business by focusing on a form of dialysis called peritoneal, which can be performed at home.

"It is a big market and it is going to continue to grow for a long time," Parkinson said in 2012 when the deal was announced. "There are only so many kidney transplants available in the world."

The increasing need for dialysis is linked to growing global obesity and diabetes epidemics. As such, more and more investors have become interested in this particular healthcare segment. Drawn to the sector is legendary investor Warren Buffett. His Berkshire Hathaway (NYSE: BRK.A) owns a 10+% stake in Baxter competitor Da Vita HealthCare Partners Inc. (NYSE: DVA).

The Baxter split mimics one made last year by Abbot Laboratories (NYSE: ABT), when it spun off its branded drug business into a new company, AbbVie Inc. (NYSE: ABBV). Abbott's remaining business is comprised of nutritional formulas, generic drugs, medical implants, and diagnostics.

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