Oil and Drug Splits: Deals to Watch

NEW YORK ( TheStreet) - Abbott Laboratories ( ABT) said Wednesday it will split itself into separate into two publicly traded companies; one focusing on medical products and the other on pharmaceuticals research and development. Abbott said that its medical products division will continue under its heritage name founded in 1888, and the research division will form a new publicly traded stock, not yet named. To make the split, current Abbott shareholders will be given stock in the new publicly traded company when it files an initial public offering.

Shares rose over 4.5% in early trading to $54.85. The company's stock has risen more than 10% this year outperforming the S&P 500. It also increased its quarterly dividend from 44 cents a share to 48 cents in April. In its announcement of the split, Abbot said that the dividend of the combined companies will match current levels and that the decision to spin its drug R&D division won't affect earnings-per-share.

"Today's news is a significant event for Abbott, and reflects another dynamic change in our company's 123-year history, strengthening our outlook for strong and sustainable growth and shareholder returns," said Miles D. White, chief executive of Abbott in a statement announcing the deal.

Abbott expects the deal to close at the end of 2012 and said in its statement that the board of directors has not yet approved the split, which is also pending approval from the IRS for its tax free nature. Abbott also expects one-time charges while the split is completed, to be quantified later. It did not yet announce any financial advisors.

In its most recent quarter ended in September, Abbott announced that earnings and operating income had fallen by more than 50% from levels in the period a year earlier. The company's net income was $4.6 billion in 2010, below $5.7 billion earned a year earlier, but revenue grew to a record $35.1 billion. In 2010, Abbott bought European pharmaceutical and vaccines giant Solvay for roughly $6.6 billion in a push to expand its reach into Eastern Europe and Asia.

The split will divide Abbott's $35 billion in annual revenue almost equally among the two publicly firms. Currently, the diversified medical products company has approximately $22 billion and the research-oriented pharmaceutical company has nearly $18 billion in annual revenue, the company said in its press statement.

Currently Abbott employs nearly 90,000 people and markets its products in more than 130 countries. Its history traces back to Wallace Abbott, who in the 19th century founded the giant that first generated sales from a Chicago drug store and the development 'dosimetric granules.' It invented Chlorazene, which was used to clean the wounds of U.S. soldiers in World War 1, according to the company's website.

According to the split announcement, the diversified medical products company will consist of Abbott's branded generic pharmaceuticals, devices, diagnostic and nutritional businesses -and will retain its name. After the split, Abbott will continue to target double-digit earnings-per-share growth and a push into emerging markets. Currently, the division gets more than 40% of sales in emerging markets and is the leading pharmaceutical company in India.

The research-oriented pharmaceutical company will includes Abbott's current portfolio of drugs including Humira, Lupron, Synagis, Kaletra, Creon and Synthroid - and has $18 billion in annual revenue. In its pipeline, the company said it is in phase 2 or 3 development of compounds for as immunology, chronic kidney disease, Hepatitis C, women's health, oncology, Multiple Sclerosis -- and Parkinson's and Alzheimer's diseases. Anti-inflammatory arthritic injection Humira is currently the division's top-selling drug with $6.5 billion in annual sales.

Current chief executive White will stay on to run the diversified medical products company, while Richard A. Gonzalez and executive of the pharmaceuticals division will become chief executive of the new publicly traded pharmaceutical company

Late Tuesday, Williams ( WMP) said it will scrap its plans to IPO its WPX Energy division, creating two separate publicly traded companies in a tax free spinoff. The energy pipeline and exploration company now expects to split itself into separate publicly traded pipeline and exploration & production companies.

It had expected to sell 20% of WPX Energy in an IPO that would raise roughly $750 million.

Shares in Williams rose nearly 2% to $29.63 a share in early trading, the company is up nearly 20% year to date.

The change of strategy, announced in April, was a result of volatile stock markets and a tough market for selling new shares. Williams Chief Executive Alan Armstrong said, "The continued instability and weakness in equity markets, especially for new issuances, makes the IPO of WPX Energy appear unattractive in the near term."

The announcement makes William's split more defined than the previous WPX Energy IPO. With the spinoff Williams shareholders will retain their ownership of its North American midstream and natural gas pipeline business; and will be given common stock in WPX Energy, the exploration and production company with a focus in oil shale and gas explorations in the Bakken and Marcellus shale's. The new E&P company will trade on the New York Stock Exchange under the ticker WPX.

At the Value Investing Congress on Tuesday, Adam Weiss of Scout Capital Management said that Williams should split into separate pipeline and exploration companies. He said in a split, the two companies could be worth as much as $47.50 a share. Weiss highlighted that pipeline investors like stability, while exploration investors like capital intensive projects to build oil and gas reserves - making shareholders desires in a combined company 'asymmetric.'

In 2010, Williams and Williams Pipeline Partners ( WPZ) announced a restructuring valued at $12 billion where the Tulsa, Oklahoma company would contribute pieces of its pipeline, midstream and interests in Williams Pipeline Partners to Williams Partners - creating a master limited partnership. It was a change in strategy pursued by newly elected chief executive Armstrong, who replaced Steve Malcolm. Under Armstrong, Williams has raised its dividend 85%. In 2010, on the restructuring, Williams reported its first annual loss since 2003.

Both splits are a tack in strategy to make the company smaller and more manageable. This year Williams bid for pipeline company Southern Union ( SUG) but lost to a $5.7 billion July bid by Energy Transfer Partners ( ETP).

In its announcement of the split Williams said that Ralph Hill will become chief executive of the new exploration and production company, and that the split companies should retain their investment grade credit ratings.

Barclays Capital ( BCS) and Citigroup ( C) and JPMorgan ( JPM) acted as financial advisors on the spin plan.

-- Written by Antoine Gara in New York

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