For the second time in three years, Baxter International said it will slim down by spinning off a major division.
This time, Deerfield, Ill.-based Baxter has decided to shed its cardiovascular products and services business to focus on its core operations, which include blood and kidney therapies, and medication delivery, such as drug pumps and intravenous fluids.
The independent cardiovascular company, which has yet to be named, will be a leading supplier of tissue heart valves, vascular surgery products, critical-care monitors and cardiac-assistance devices. As a division of Baxter, the cardiovascular group is expected to reap sales of nearly $1 billion this year.
For many hospitals, the biggest change wrought by the spinoff would be new business affiliation for the clinical perfusionists and related professionals who staff operating rooms across the company as contract workers. In fact, nearly 40% of the division's 2,600 employees are based in hospitals.
The spinoff, executives said, will let Baxter focus on building its core businesses while freeing the new cardiovascular business to make faster decisions and more acquisitions in the highly competitive cardiac products marketplace.
"What this really comes down to, to a certain degree, is to increase the pace and how aggressive you can be," said Harry Kraemer, Baxter's president and chief executive officer.
Kraemer said that intercompany competition for financial resources caused the cardiovascular group to pass on several acquisitions it might have made as an independent company.
"When we are really objective about it, one thing that's fair to say is that we haven't invested in the cardiovascular business as we have in the other three (business units)," Kraemer said.
Baxter also hopes to recreate the financial success it had by spinning off Allegiance Corp. as an independent maker and distributor of medical and surgical supplies in 1996. The value of Allegiance shares grew more than sixfold during its three years as an independent public company, Kraemer said. Cardinal Health, Dublin, Ohio, bought Allegiance for $5.4 billion in February.
Several important details of the cardiovascular divestiture remain to be worked out, such as the amount of stock in the cardiovascular company each Baxter shareholder will receive as compensation for the spinoff. The deal doesn't need a shareholder vote, however, and Baxter expects to complete the divestiture during the first half of 2000.
Michael Mussallem, 47, who has been Baxter's group vice president for cardiovascular products since 1995, will be president and CEO of the new company, which will be based in Irvine, Calif.
Wall Street generally applauded the move. "In a spinoff, management is in the limelight," said Rick Wise, an analyst at Bear, Stearns & Co., New York, who likes the deal. "Decisions get made faster, and they move more aggressively." He expects the cardiovascular business, which is already doing well, to do even better outside Baxter.