Baxter to Split Into Two Companies by the Middle of 2015

Mar 27, 2014 4:17 pm ET

(Updates with closing shares in second paragraph.)

March 27 (Bloomberg) -- Baxter International Inc., the maker of hemophilia treatments, will split into two companies, one focused on developing biotechnology and pharmaceutical medicines and one that sells medical products.

The shares rose 3.9 percent to close at $72.80 in New York trading after the Deerfield, Illinois-based company released its statement today.

The deal, to be completed by the middle of next year, follows a two-year trend in the industry in which Abbott Laboratories, Pfizer Inc. and Bristol-Myers Squibb Co. have all sold, spun off or split apart businesses. Baxter’s drug unit last year had $6 billion in revenue, while the medical-products division had more than $9 billion, according the statement.

“It’s a very good move,” said Joanne Wuensch, a New York- based analyst at BMO Capital Markets, in a telephone interview. “They’ll be able to focus on businesses they do best, and unleash opportunities for franchises which could have been hidden inside a larger organization.”

Baxter was trading “at a steep discount” because of concern over competition in the hemophilia market, she said.

The transaction may produce a market potential of $50 billion in 2017 for the medical-products division, and $65 billion for the biopharmaceuticals division, according to company data presented during the call.

The split will “enhance prospects for growth in both mature and emerging markets,” Baxter Chief Executive Officer Robert Parkinson, Jr. said in a conference call today.

New Therapies

Parkinson will remain CEO and chairman at the medical products company, which retains the Baxter International name, according to the statement. Ludwig Hantson will be CEO of the pharmaceutical company, which will be named at a later junction, Baxter said.

The new biotechnology-pharmaceutical company will focus on hemophilia and new therapies for treating bleeding disorders, Hantson said on the call. It will be “driving scientific innovation and leveraging expertise into new therapeutic areas through acquisitions and collaborations,” he said.

The two new divisions will attract new investors depending on their appetite for risk, according to Erik Gordon, a professor at the Ross School of Business at the University of Michigan.

‘Risk Profiles’

“Baxter had two businesses with very different risk profiles,” Gordon said by telephone. “The bioscience division is going to invest a lot of money in next-generation treatment, which is risky business. Then you have another business where you’re selling bags of IV solution, which has nice, steady growth but is not too risky.”

In January, Baxter reported fourth-quarter profit that beat analysts’ estimates on demand for hemophilia therapies. Sales rose 16 percent to $4.4 billion, boosted by the Advate and Feiba hemophilia treatments and the acquisition of Sweden’s Gambro AB, a maker of dialysis products. Gambro will remain on the Baxter side, according to the statement.

Baxter said in December 2012 it agreed to acquire Gambro for 18.3 billion kronor ($2.8 billion), adding a unit with about $1.6 billion in annual sales.