Medical Supply Firm Baxter to Split in Two : Breakup: Nation’s No. 1 hospital supplier says the companies will focus on international sales, cost management.
In the latest of a series of big U.S. corporate breakups, Baxter International Inc., the world’s largest hospital supply company, said Tuesday that it will split in two.
A global medical technology company will keep the Baxter name and will sell products such as kidney dialysis equipment, heart valves, blood collection and storage gear, intravenous fluids and pumps and biotechnology. The yet-to-be-named counterpart will be spun off in a distribution of new shares to current Baxter stockholders. That company will include Baxter’s hospital instrument business such as scalpels and syringes and will provide products and services to help health maintenance organizations, hospitals and other health care providers manage their costs.
“What we have really done in creating these two companies is to keep the international expansion and the technical leadership in one company, and to separate health-cost management--and begin to focus on it--in a second company,” said Vernon Loucks Jr., Baxter chairman and chief executive. “We believe this is the right move at the right time, not only for our shareholders, but also for our customers and for our employees.”
Wall Street agreed. In late afternoon trading, Baxter stock was up $2.875 to $41.375 a share on the New York Stock Exchange.
Baxter International has diverse operations in Southern California employing about 3,000 people, said Jill Carter, company spokeswoman.
In Irvine, the company operates a major division that manufactures heart valves and other equipment used in cardiovascular surgery. The company’s Hyland division, with operations in Glendale and Thousand Oaks, manufactures biotechnology products used to treat blood-related disorders. The company also has smaller biotech operations in Orange County and a distribution facility in Ontario.
Except for the Ontario plant, none of the Southern California operations will be spun off into the newly created companies, Carter said.
Baxter, based in the Chicago suburb of Deerfield, joins other corporate mammoths such as AT&T; Corp. and ITT Corp. in proposing breakups in hopes that the resulting businesses will be able to compete more effectively in their respective fields and collectively command a higher price in the stock market.
Salomon Bros. analyst Eli Kammerman said the move makes sense because many companies in high-technology fields need to focus on expanding without distraction. “I would expect management in both companies to focus on the key missions for each business, and it should also improve competitive standing,” Kammerman said.
Not everyone cheered the breakup. But the debt rating company Moody’s Investor Service said it may downgrade the company’s bonds because the split will increase the risk that some debts might not be repaid.
The new Baxter will be headed by Loucks. The other company, which Baxter calls its cost-management business, will led by Baxter Executive Vice President Lester B. Knight.
In making its move, Baxter is going in a direction opposite from other health care companies. Those have been growing larger through mergers and buyouts.
The industry’s profits have been under pressure for several years because of demands for lower health insurance premiums from big corporations.
Baxter, which has 17 cost-containment contracts with hospitals and other medical suppliers, probably will expand its inventory- and information-management segments to help curb costs, Kammerman said.
