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If you are coming from my website, just for clarity: If this were real, I would propose to increase

media presence for the nutritional segment to increase growth and net income. This would

include, but not be limited to: commercials, endorsements from senior and family-oriented

communities, and a stronger social media branding and presence (Facebook, Instagram,

and Twitter) for nutritional products.

However, since this was a fictional assignment, I decided to have fun with it and propose a very

risky solution! (This is because also because I did not feel like writing another simultaneous

marketing paper at the time.) Anyway, here is my project:

Abbott Laboratories

Solution and Proposal Analysis

Prepared for Dr Corinne Knight

Submitted for Tarannom Naeemi

Prepared by Tiffany Ton

Problem Statement: Abbott Laboratories is not growing in all areas

Mission Statement: To propose a solution to help the company increase their net

income

19 February 2019

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Table of Contents

Title Page ....................................................................................................................................................................................... i

Table of Contents ...................................................................................................................................................................... ii

Executive Summary ............................................................................................................................................................... iii

Problem Analysis ...................................................................................................................................................................... 1

Figure 1 ......................................................................................................................................................................... 1

Figure 2 ......................................................................................................................................................................... 2

Solution Analysis ...................................................................................................................................................................... 3

Proposal ................................................................................................................................................................................... 3

Timeline .................................................................................................................................................................................... 4

Figure 3 ......................................................................................................................................................................... 4

Budget ....................................................................................................................................................................................... 5

Figure 4 ......................................................................................................................................................................... 5

Conclusion ................................................................................................................................................................................... 5

Works Cited ................................................................................................................................................................................. 6

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Executive Summary

This report is a proposal to divest the nutritional segment of Abbott Laboratories.

Credible sources such as Mergent and Google Finance were used as evidence to support

financials and data in this report.

Abbott Laboratories is a leading pharmaceutical company focused on innovation and

research on medical and healthcare devices as well as nutrition. The company has four major

segments: established pharmaceutical products, nutrition, vascular, and diagnostics. Recently, the

company has been seeing a decline in net income, and a major problem contributing to that is the

stunted growth seen in the company’s nutritional segment. Although the segment has seen large

revenue numbers, the numbers also continue to decline annually. As no other segment seem to

have this problem, the company can take steps to take on a more narrow focus on improving all

other segments of the company by divesting in the nutritional segment and allocating the sales

profit elsewhere. This would lead to a larger growth in the company’s revenue, and allow them

to focus on creating medical devices rather than consumer-based nutritional products as well.

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Problem Analysis

In the 2018 fiscal year, Abbott Laboratories have had a net income of $418 million,

compared to $1.4 billion in 2016, and $477 million in 2017. This shows a 65.71% percent, and a

12.37% decrease per year, respectively (“Analysis”).This is crucial information because net

income demonstrates a company’s earnings throughout a set period of time. Net income is

defined as the money left over after deducting all expenses, otherwise shown through the

formula:

Net income= Revenue - Expenses

The following figure illustrates the company’s net income from 2016 to 2018, showing a large

accumulation of expenses in proportion to revenue growth.

Figure 1: Net Income Source: Y Charts

Because of this, we understand that the continuous decline in net income is due to an

inefficient allocation of money and resources, where the amount of expenses continues to grow

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unproportionally large compared to revenue. One of the major factors contributing to this is the

stunted growth in the company’s nutritional segment (“Abbott Laboratories”). Whereas other

areas of the company’s research and development continue to show more growth and

improvement, its nutritional segment shows less than desirable results. Figure 2 below verifies

the numbers for revenue in the 2015 and 2016 fiscal year, illustrating the growth in the

pharmaceutical products, diagnostics, and vascular departments in contrast to the falls in both

revenue and operating income from the nutritional segment.

Figure 2: Business Analysis Source: Mergent

As its biggest segment, the company continues to fund the nutritional well above the other

segments; however, doing so, it places less focus on other faster growing departments, stunting

the rate of its overall growth and contributing to a continuous annual decline in net income. The

current strategy is not the company’s worst plan, but Abbott Laboratories has far much more

room for potential improvement and growth.

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Solution Analysis

Proposal

The solution to improving and increasing net income growth is to simply sell the

company’s nutritional segment of the company and then allocate the money towards researching

and developing for the other three segments. This suggested sale is a business strategy known

“divestiture.” Divestiture is when a company sells a portion of their business, typically done for

many reasons, including to “[focus] on the core competencies of the company while spinning off

other units so that remaining units will thrive more” (Orosz). By divesting the nutritional

segment of Abbott Laboratories, the company can better focus on creating medical and

pharmaceutical devices that are being invested in the remaining three segments rather than

nutritional consumer-based products.

Divesting may seem risky, and to some people be used only as a last resort, or even as a

way of giving up. This may be true to an extent, as selling away a portion of the company

generally means that the portion is believed to be no longer profitable. However, if used wisely

and carefully, could be highly beneficial to the company. General Electric’s former CEO Jack

Welch, for example, divested over hundreds of business units, and contributed highly to the

company’s outstanding revenue growth from $26.8 billion at the beginning of his term to $130

billion at the end (Orosz). Because Abbott Laboratories’ nutrition segment currently is bringing

out high revenue (though not growth), the company could potentially acquire a very large and

profitable deal before stunted growth could turn it into a burden. Not only will the company

receive a large sum of liquid assets to allocate to the remainder of the business, the company will

have better focus on industrial, medical goods and devices.

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This decision will be beneficial in the long run because it will give the company a better

main focus on the use of their products, as well as give them a large sum of liquid assets to

allocate towards projects with more potential in growth. As growth in these better invested

segments increase, revenue generally will increase at a higher rate compared to expenses. This in

turn will help with improvement in Abbott Laboratories’ net income trends.

Timeline

Valuation analysis of the nutritional segment will start the process of selling the

company’s nutritional segment. After, valuation enhancement will take place in order to make

that portion of the company as appealing to potential buyers as possible, maximizing the

segment’s potential profit from being sold. The process will take approximately three months to

refine any research and to attempt to get revenue up as much as possible. Then, financial

statements designed for sales purposes, as well as a beginning of a plan for allocation of money

afterwards, must take place. The next steps would be coming up with marketing strategies,

qualifying potential buyers, and starting the negotiation process. After the deal is closed, the

official purchase and business transition will occur and the plan for allocating the new liquid

Figure 3: Proposed timeline for selling the company’s nutritional segment

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assets within the remaining three segments will begin to be finalized. The process would take

approximately six months in total.

Budget

Category Low High

Pre-Marketing Valuation Enhancement

Costs

$600,000 $1,000,000

Professional Financial Advisor Salary $2,000 $4,000

Total $602,000 $1,004,000

Figure 4: Proposed Budget

The proposed budget for this change is $1,100,000. There is not much needed to undergo

this proposal; however, for the company to maximize the price of the segment, at least $602,000,

or approximately 10% of the segment’s recorded revenue for the year, is needed for valuation

enhancements and reliable financial advisors. This will give further reassurance that the segment

will look as appealing to potential buyers as possible and be sold at its highest price. We are

estimating that a well-credited and reliable financial advisor would have a flat fee of around

$2000 to $4000. The highest costs for the proposal would be $1,004,000.

Conclusion

The problems of decreasing annual net incomes, and stunted growth in Abbott

Laboratories’ nutritional segment can be solved by divesting in the nutritional segment and

allocating the money within the remaining three segments: established pharmaceutical products,

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diagnostics, and vascular products. This would leave the company with a more narrow focus, and

three already growing segments with more funding. The plan would start will a valuation

analysis and a valuation enhancement in order to interest potential buyers with its potential, and

end with a sale and a financial plan to split the cash flows within the company. If Abbott

Laboratories implements this proposal soon, it would lower the risk of its nutritional segment

becoming a burden with no potential for growth, and higher its chances for improving and

growing its company a great amount more.

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Works Cited

“Abbott Laboratories.” Google Finance, Google, 2019,

accounts.google.com/ServiceLogin?service=finance.

“Abbott Laboratories Net Income (TTM):” YCharts, YCharts, 2019,

ycharts.com/companies/ABT/net_income_ttm.

“Analysis: Abbott Laboratories.” Mergentonline.com, 2019,

www.mergentonline.com/companyfinancials.php?pagetype=analysis&compnumber=44&

period=Annuals&dataarea=CF&range=5¤cy=AsRep&scale=AsRep.“Analysis: Abbott

Laboratories.” Mergentonline.com, 2019,

www.mergentonline.com/companyfinancials.php?pagetype=analysis&compnumber=44&

period=Annuals&dataarea=CF&range=5¤cy=AsRep&scale=AsRep.

Orosz, Jacob. “Can I Sell a Portion of My Business?” What Happens to Debt When Selling a

Business | Morgan & Westfield, Morgan & Westfield,

www.morganandwestfield.com/blog/can-i-sell-portion-my-business.

http://www.morganandwestfield.com/blog/can-i-sell-portion-my-business