Pros Cons- The spinoff will enable both companies to commercialize new and existing products more effectively, as well as accelerate revenue and enhance profitability.

- Small to mid-size bio and pharma companies outperform large pharmas in market indices over past decade

- Increase in scale and revenue base for growth has become one of the major challenges for large pharmas to create shareholder value in an environment increasingly constrained by static or declining performance on drivers such as the productivity of organic R&D

- The mid-tier biotech group, defined as companies with a market cap of $2 billion to $20 billion, has been depleted through mergers and acquisitions. These companies have traditionally offered solid growth foundations for large pharmas as most bring either top-line revenue from a marketed product or equity appreciation from a late-stage asset.

- Without its BioScience division, I believe Baxter's outlook strictly as a medical device company is promising nonetheless. In its most recent earnings report, Baxter achieved a 22% rise in global sales for its medical products, compared to a 5% rise in biopharmaceutical products developed by its BioScience division over the same period

- By 2017, Baxter estimates that the market for its medical products will have grown to $50 billion, affording the company numerous opportunities in industries like biosurgery, anesthetics, nutritional therapies, and fluid systems.

- Both the medical devices and BioScience divisions have strong pipelines that bring positive outlook for both.

- The change to a negative outlook reflects Moody's belief that Baxter's separation of its bioscience division would be a material event, especially in light of the degree to which bioscience currently contributes to Baxter's sales and profitability.

- Although Baxter's medical division's growth will benefit from the recent Gambro acquisition, many of Baxter's key pipeline products are in its bioscience area.

- The separation will cause Baxter to lose scale, a higher margin business, as well as segment diversity, all of which are currently key credit strengths

- Baxter’s current structure and success is supported by its relatively large size as well as its broad product offerings focused on critical care medical needs, which help to insulate it from the effects of economic downturns

- The company could lose some synergy. By having units together, they wouldn't have to endure some of the costs they will when the companies are separate. For example, certain functions that will be duplicative such as IT, executive boards, investor relations, legal teams, to some extent, and physically speaking, some geographies where the company might have to split up a building.

- You lose some strategic

synergy, as well. A big trend right now is to develop drugs in tandem with diagnostics.

- Possible drawbacks are a reduction in economies of scale, including borrowing capacity (Abbott's debt has been downgraded by some rating agencies); increased risk due to lessened diversification; loss of strategic synergies; and costs to other stakeholders (for example, employees). Of course, the main risk of a spinoff is that management will have miscalculated, and one or both of the resulting companies will not perform as well as expected.

General Info

- Baxter's continued pipeline development will hopefully help bolster earnings to achieve modest overall performance through 2015.

- Australia's National Blood Authority (NBA) issued a four-year award for ADVATE as Australia's preferred recombinant FVIII product. Once it becomes effective in early July, 2,300 people diagnosed with hemophilia A will receive access to ADVATE

- Other noteworthy achievements for ADVATE include the continued success in expanding commercialization in the UK, which now treats 5,600 people; regulatory approval in Russia and Turkey; and the impressive 30% uptake in Brazil. As ADVATE is now available in 62 countries and product uptake increases, revenue should put the new company in a favorable position in 2015.

- The split makes strategic sense as the two business segments generally service different end markets. The Medical Products business primarily serves acute and non-acute care provider settings, while the BioScience business mostly works with individual physicians or physician practices, with a particular focus on hematologists.

- Baxter acquired Gambro AB on Sept. 6, 2013 for approximately $3.9 billion from private owners. Fitch believes the transaction is strategically sound, given Baxter's operating focus on

the hemodialysis and peritoneal dialysis segments. The Gambro acquisition will enable Baxter to expand both its renal portfolio (particularly in hemodialysis) offering and its geographic reach. While Baxter's $300 million synergies target appears reasonable, in Fitch's view there is integration risk with a transaction of this size.

- The medical devices business tends to be somewhat defensive and slow growing in nature, while the biopharmaceuticals division carries more risk in growth and while both are medical, the two sides of the business have become so distinct that splitting them up made sense, company officials explained.

- Separating these businesses will enhance value for all our constituents including shareholders, patients, healthcare professionals and providers and employees. These businesses operate in distinct markets with evolving underlying fundamentals

- Generally, analysts believe that the split into two companies makes sense as the company's two units have different profiles: 1) the medical devices division is more defensive and slow growing in nature; and 2) the biopharmaceuticals division is more growth oriented but carries more risk. - There may be other financial or legal reasons for a spinoff, such as stripping underperforming or at-risk assets from an otherwise successful company, but this is not likely the case with Abbott. In the case of Kraft for example, it divided its grocery and snack businesses; the former was seen as impeding growth of the latter. An example of a spinoff for legal reasons was when Monsanto transferred liability related to PCB contamination by spinning off its industrial chemical division in '97.