In a recent filing with the US Securities and Exchange Commission (SEC), Abbott Labs (ABT) announced its intention to implement a restructuring plan related to its Feb 2010 acquisition of Belgian company Solvay Group’s pharmaceuticals business.
The decision was based on an evaluation of Solvay Pharmaceuticals’ research and development portfolio, manufacturing operations, commercial structure and global support functions. The company has decided to streamline operations along with improving efficiencies and reducing costs. They expect to implement these plans within the next two years.
With this restructuring plan, Abbott Labs hopes to achieve savings as had been announced at the time of the Solvay acquisition. At the time of announcing the deal, the company had said that the acquisition would be accretive to ongoing earnings per share by 10 cents in 2010 and by more than 20 cents by 2012. The company expects to realize most of the savings by 2012.
Ongoing EPS Guidance Maintained
In relation to the restructuring, Abbott Labs expects to recognize pre-tax charges of approximately $810 – $970 million over the next 2 years. About $475 – $640 million of these charges are expected to occur in the second half of 2010, with $430 million expected to occur in the third quarter itself. These include charges associated with job cuts and discontinuation of certain R&D programs.
The company said that its ongoing 2010 earnings per share guidance will remain unaffected as these costs will be treated as specified items. Moreover the company sees earnings in the range of $4.13 – $4.18 per share, representing double-digit growth. The Zacks Consensus EPS Estimate for 2010 currently stands at $4.16.
Besides recognizing charges related to its restructuring plan, Abbott Labs expects to incur one-time costs associated with the integration of Solvay Pharmaceuticals’ operations. While the company expects to incur one-time charges of $135 million in the second half of 2010, about $175 million will be incurred in 2011.
Abbott Labs completed the acquisition of Solvay Pharmaceuticals for €4.5 billion or approximately $6.2 billion in mid-Feb 2010. At that time, Abbott Labs said that it expects the acquisition to boost annual sales by about $2.9 billion, with a major part of additional sales coming from ex-US territories.
Acquisition has Expanded Abbott Labs’ Product Portfolio
This deal has helped Abbott Labs gain access to Solvay’s pharmaceutical portfolio, which includes products that focus on specialty markets like cardiovascular disease, neuroscience, men’s and women’s hormonal health and gastroenterology. Abbott Labs has also gained full global rights to Solvay’s fenofibrate franchise – TriCor and TriLipix.
The acquisition should also boost Abbott Labs’ R&D spending capacity, which should lead to the speeding up of the company’s pipeline programs. Moreover, the Solvay deal has not only expanded Abbott Labs’ product portfolio, it has also allowed Abbott Labs to expand its presence in the European market as well as emerging markets where Solvay has a strong presence.
Neutral on Abbott Labs
We currently have a Neutral recommendation on Abbott Labs, which is supported by a Zacks #3 Rank (short-term “Hold” rating). Abbott Labs’ strong business segments, contributions from recent acquisitions and impressive late-stage pipeline should help fortify long-term earnings growth.
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