Abbott Board Approves Spin-off

Abbott (ABT) announced today that its board approved the spin-off of its research-based pharmaceuticals business Abbvie (ABBV). For every one share of Abbott, investors will receive one share of Abbvie. The distribution is expected to be paid on Jan 1st 2013 to holders of common stock at the close of Dec. 12. 2012.

Read more about it here.

Disclosure: I do not own ABT

7 thoughts on “Abbott Board Approves Spin-off

  1. Reading through the sec filings. I am not sure if there will be any immediate benefits to the stock price immediately. If you feel there will be a benefit, the january $65 calls look pretty cheap at a little above $1+.

    Abbvie is a bit scary as it is highly dependant on Humira. US Patent expires in 2016.

    It looks like Abbvie will trade around $50 post spin-off. Abbott will be the rest.

    Anybody have thoughts on the spin-off.

  2. I am long ABT as of a couple weeks ago. I hope to pick up additional shares of the new ABT (sans ABBV) if funds are forced to dump the shares to adhere to their investment objective and cause the shares to become mis-priced following the spinoff. Regardless I plan to sell my ABBV stake soon rather than later and stay long the new ABT.

    I think ABBV is scary as well. Perosnally, I try to avoid biopharma companies altogether (so I am biased against ABBV from the get-go) but ABBV appears extra scary to me. It appears they got loaded with the majority of the new debt ABT just raised. Additionally, they may have a relatively large payout ratio with the new dividend, something that could reduce R&D investments in a company/business segment that heavily relies on R&D to survive once patents (like Humera) expire. To top it all off, the Humera patents are expiring and, without any “sure bets” in the product pipeline, ABBV seems like a gamble.

    Meanwhile the new ABT
    – Will pay a more affordable dividend that it will have the ability to successfully grow over time
    – Is implementing long-term strategies to significantly increase operating margins across all 4 product segments
    – Will operate in a much more stable and predictable business segment with incredible international growth opportunities and the excitement of innovative products in the pipeline

    For me it is a no-brainer at this point but I would love for someone to present an opposing opinion/view and perhaps point out aspects of ABBV that I may be overlooking.

    ST

      • Just something rudimentary. Subtracted FCF for the total company from the Abbvie Pro Forma Cash Flow. I think Abbvie will trade around $45-$50 and Abbot around $15-$20.

        Where are you looking to buy Abbot?

        • I am currently in ABT at ~$64 and will be looking to buy more post spinoff if the new ABT shares trade anywhere around/below the $17 range. Currently $20 is my crude price target and that includes a ~15% margin of safety.

          So based on your valuation, it sounds like you think ABT is currently fairly valued?

          PS: I am quite jealous of your GNE arbitrage trade. It appears to be working beautifully at this point. I could not bring myself to pull the trigger for fear of illiquidity issues in the preferred shares market and the conversion causing the GNE-PA shares to drop upon everyone converting.

          Trade well done.

          • Yea, I probably have not analyzed as much as you. Just rudimentary like I said. So, I could be off.

            The thing I am curious about is that even after the spin-off is that Abbott will still have a bunch of separate businesses. There could be a possibility that they could sell or spin-off some of the units.

            Yea, GNE worked out well. I got a little greedy and sold a little quick probably around an average price near 6.60.

            I am still curious to see what will happen after the exchange. WIll the common go down. Will the preferred go down. I have a feeling there might be pressure on the preferred if people do convert. However, now that the prices are converging not as many people might convert. Def an interesting play.

Leave a Reply