Baxter to Create Cardiovascular Spinoff in O.C.
Baxter International Inc., the world’s second-biggest medical products maker, said it will spin off its large cardiovascular division to shareholders next year to make it more aggressive in a highly competitive industry.
The move, approved Sunday by Baxter’s board in Deerfield, Ill., will create one of the largest cardiovascular businesses in the country.
The new Irvine-based firm, as yet unnamed, makes the world’s best-selling tissue heart valves and is expected to generate nearly $1 billion in revenues this year, which would make it one of the top 15 companies in Orange County in annual sales.
Investors greeted news of the spinoff by snapping up Baxter shares. The stock moved up $3.31 a share, or 5% to $64.19 in heavy trading on the New York Stock Exchange.
The new business will be able to grow more quickly on its own than under the Baxter umbrella, chief executive Harry Kraemer said.
“Right now the cardiovascular business competes for resources with all the other businesses in this nearly $7-billion organization,” Kraemer said. “As an individual entity, it will be able to use its publicly traded stock to make acquisitions and strategic alliances.”
The unit makes tissue heart valves that come from cows and pigs to replace human valves. Other products include catheters for vascular surgery; a mechanical heart pump used by patients awaiting heart transplants; and oxygenators, tubing and blood filtration products used in open heart surgery.
After shedding the the cardiovascular business, Baxter will focus on manufacturing intravenous-therapy products, kidney-dialysis equipment and plastic blood-collection containers, among other things. The new cardiovascular firm faces major competition from Guidant Corp., Medtronic Inc. and St. Jude Medical, among other companies.
J.P. Morgan analyst Michael Weinstein applauded Baxter’s decision and upgraded Baxter’s stock to “buy” from “market perform” following the announcement.
“The new entity will have more management focus,” he said. “I think they’ll be more acquisitive and look for ways to enhance their product pipeline.”
Baxter has had success with previous spinoffs. In 1996, the company divided into two parts with its hospital-supply business becoming Allegiance Corp. Earlier this year, that company was swallowed up by Cardinal Health Inc. at the equivalent of $100 per share, more than six times the initial public offering price.
The company hopes the spinoff performs as well as Guidant, whose shares have soared since the company was shed by drug-maker Eli Lilly & Co. five years ago.
Michael Mussallem, a 20-year Baxter veteran and head of the company’s cardiovascular business since 1995, will become chief executive of the new firm, which will have 6,000 employees, including 1,600 in Orange County.
“The combined value of the two separate businesses will be significantly higher than continuing to run Baxter as one business,” Mussallem said.
The spinoff also will give the new entity a powerful tool--stock options--to recruit and retain key executives, he added.
The new entity has deep Orange County roots, Mussallem said. Baxter acquired the cardiovascular company in 1985 when it swallowed up American Hospital Supply. American Hospital had bought a cardiovascular company from an Orange County medical devices firm founded in the 1960s.
In January, Rockwell International Corp. spun off its semiconductor division, creating a large independent company, Newport Beach-based Conexant Systems Inc.
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Baxter Spinoff
Baxter International is cutting loose its cardiovascular unit, which will become a public company. The unit at a glance:
Name: To be determined
Headquarters: Irvine
Chief executive: Michael Mussallem, currently a Baxter vice president who oversees the cardiovascular unit.
Employees: 6,000 (1,500 in Orange County)
Projected ’99 revenue: Nearly $1 billion
Main products: Tissue heart valves, heart-monitoring systems, catheters and blood oxygenators used during coronary bypass surgery.
Competitors: Guidant Corp., Medtronic Inc., St. Jude Medical.
Sources: Bloomberg News, Reuters
