SPIN OFF

Contents: Spin-off introduction Spin-off mechanisms Drivers Abbot / Abbvie spin off

BY VIJAY KUMAR BOJJA 12PMM390 Dept of pharmaceutical management NIPER S.A.S NAGAR

SPIN-OFF
Creation of a new independent company through distribution of new shares of an existing business or division of a parent company is known as spin-off. The spun-off companies are expected to be worth more as independent entities than as parts of a larger business. Sun Pharma, India's largest drug-maker by market capitalization, had spun off its domestic formulation business to a wholly-owned subsidiary Sun Resins And Polymers Pvt Ltd to "enhance focus on the business and allow for quicker responses to competitive market conditions".
Ex:

Spin-Off Mechanics
TYPE OF SPIN-OFF Spin-Off DESCRIPTION Parent firm distributes shares of the spun-off subsidiary to parent shareholders Parent firm sells a portion or all shares of subsidiary through an IPO in the equity market Parent company's shareholders are offered shares of a subsidiary in exchange for the parents' shares (exchange offer)

EXAMPLES Abbot / Abbvie Time Warner / AOL Bristol-Myers / Mead Johnson Nutrition Citigroup / Primerica Bristol-Myers / Mead Johnson Nutrition Sara Lee / Coach

Carve-Out

Split-Off

Spin-Offs

A parent distributes the stock of a subsidiary in the form of a dividend Following the distribution, the stockholders hold stock in the parent and the stock in the company that was spun off Two independent companies exist where before there was only one A parent distributes the stock of a subsidiary in the form of a dividend A Spin-Off effectively removes the parent from management and control of the subsidiary Pure spins are tax efficient

National institute of pharmaceutical education and research S.A.S NAGAR

Carve-Outs
Parent company sells some or all of the stock of a subsidiary to the public in an IPO The carve-out may pay a portion of the IPO proceeds to its parent Parent would typically sell less than 20% of subsidiary to the public and then distribute the balance of the stock to their shareholders in a tax-free distribution
(Example: Bristol-Myers Squibb / Mead Johnson Nutrition)

Parent sells Equity in the New Firm to the Public (IPO) and creates a New Publicly Traded Entity. A carve-out brings cash into the firm, whereas a pure spin-off does not. Ex: Wipro ltd / Wipro enterprises

Split-Offs
It means of reorganizing an existing corporate structure in which the stock of a business division, subsidiary or newly affiliated company is transferred to the stockholders of the parent company in exchange for stock in the latter.
Parent/Subsidiary Date Size($mm) %of Parent Shares Repurchased Initial Premium Closing Premium Over Subscription Factor Sub as % of parent Market

Eli Lilly / Guidant

9/18/95 $1.55B

6%

13.10%

8.80%

2.9X

9%

Tracking Stocks
These are the stocks that are created to track the fortunes of one or more subsidiaries. Unlike a spin-off where a division is separated from the parent, goes public, and has complete autonomy financially and managerially from the parent company-tracking stocks represent shares that are still joined at the hip to the parent. Issuing tracking stocks is always a tax-free procedure. As with spin-offs, the biggest reason for issuing tracking stock is the potential to goose the parents stock price.

National institute of pharmaceutical education and research S.A.S NAGAR

Drivers
Lack of synergy De-conglomeration Focus in core business Legal / regulatory Undervalued assets Monetize value of subsidiary De-leverage balance sheet Riskiness of the subsidiary Avoid a takeover Tax efficient Conflicts of interest

ABBOTT - SPIN OFF

Abbott Laboratories spun off its branded biopharmaceutical operations into AbbVie.

ABBOT

ABBOT LABORATORIES

ABBVIE

The parent company, which will sell nutritional products, branded generic drugs, medical devices and diagnostic products, will keep the 124-year-old Abbott name. AbbVie will take with it the arthritis drug Humira, which is expected to be the topselling drug this year with almost $9 billion in projected sales, along with brands like Synagis, Lupron, Creon, Synthroid, Kaletra, Norvir, Zemplar, and AndroGel. All Abbott Laboratories shareholders of record as of Dec. 12 had received a single share of AbbVie stock for each share of Abbott they owned when the company began trading on Jan. 2. They entitled to retain their positions in the old company. In addition, the new stock issued on a tax-free basis. The old company will take a $478 million write-down as a result of the spin-off.

National institute of pharmaceutical education and research S.A.S NAGAR

Reasons:
To protect the rest of the business from the liability of Humira & Kaletra patent cliff: The global autoimmune market is a nearly $25 billion market. Abbotts Humira is mainly used to treat rheumatoid arthritis and is the worlds best-selling drug in the autoimmune market, with an estimated market share of well over 30%. Humiras revenues exceeded $8 billion in 2011. Abbotts Kaletra (generic lopinavir and ritonavir) is an antiviral used to treat HIV and was approved in 2000. It currently has a market share of about 8% in the $18 billion HIV antiviral market.

However its market share has been declining due to competition and its exclusion from the list of preferred treatment options in some of the U.S. Department of Health and Human Services (DHHS) guidelines. Bristol-Myerss drug atazanavir (generic reyataz) and Johnson & Johnsons darunavir (generic prezista) are major competitors in the market. Trefis expect Kaletras market share to continue its gradual decline through 2015, and then drop sharply following its patent expiry in June 2016 to about 2.5% by the end of the Trefis forecast period. Now Abbott can focus on medical devices, nutritional drinks, generic drugs and other products that had become overshadowed by Humira. Abbott expects this move to reduce its exposure to the risky, highly regulated process of drug development. To attract a takeover bid from a pharmaceutical companies like Merck & Co., Roche Holding AG (ROG) or Bayer AG (BAYN).

National institute of pharmaceutical education and research S.A.S NAGAR

BIBLIOGRAPHY

http://articles.economictimes.indiatimes.com/2012-08-11/news/33153149_1_sunpharma-foreign-partner-market http://www.spinoffresearch.com/Corporate-Spin-Off/ http://www.indianexpress.com/news/wipro-to-carve-out-unit-for-nonit-biz/1025561 http://www.trefis.com/stock/abt/articles/121155/patent-expiry-series-i-abbott-humiraand-kaletra/2012-05-30 http://www.bloomberg.com/news/2012-03-21/abbott-picks-abbvie-as-name-forpharmaceutical-company-spinoff.html

National institute of pharmaceutical education and research S.A.S NAGAR