Baxter to Spin Off Heart Care Unit

question 79

Essay

Baxter to Spin Off Heart Care Unit
Baxter International Inc. announced in late 1999 its intention to spin off its underperforming cardiovascular business, creating a new company that will specialize in treatments for heart disease. The new company will have 6000 employees worldwide and annual revenue in excess of $1 billion. The unit sells biological heart valves harvested from pigs and cows, catheters and other products used to monitor hearts during surgery, and heart-assist devices for patients awaiting surgery. Baxter conceded that they have been ''optimizing'' the cardiovascular business by not making the necessary investments to grow the business. In contrast, the unit's primary competitors, Guidant, Medtronic, and Boston Scientific, are spending more on research and investing more on start-up companies that are developing new technologies than is Baxter.
With the spin-off, the new company will have the financial resources that formerly had been siphoned off by the parent, to create an environment that will more directly encourage the speed and innovation necessary to compete effectively in this industry. The unit's stock will be used to provide additional incentive for key employees and to serve as a means of making future acquisitions of companies necessary to extend the unit's product offering.

-In your judgment, what did Baxter's management mean when they admitted that they had not been "optimizing" the cardiovascular business in recent years? Explain both the strategic and financial implications of this strategy.

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Definitions:

Total Assets

The sum of all assets owned by a company, including both current and non-current assets.

Total Liabilities

The sum of all financial obligations and debts owed by a company to external entities or individuals.

Total Assets

The cumulative value of all resources owned by a company, including cash, inventory, property, and equipment.