|Abbott CEO Miles D. White|
Wall Street analysts took advantage of a July 14 conference call concerning Abbott's ($ABT) just-announced sale of its developed market generics business to ask about some of their favorite topics, future M&A and the recent onset of tax inversion mania among life science companies.
In fact, the all-stock $5.3 billion divestiture to Mylan ($MYL) had an inversion element itself. Following the deal's closure, the Pennsylvania generic and specialty pharma company will organize itself in Netherlands under the name Mylan N.V. and see its effective tax rate fall from 35% to around 20%. But Abbott CEO Miles D. White told Wall Street he does not feel pressure to join in the inversion party himself, and would only do so if the transaction made sense from other strategic perspectives as well.
He believes that a lot of people misunderstand the purpose of inversion, saying, "It's constantly characterized as reducing taxes et cetera. I would only point out that when a company inverts, it still pays the same taxes in the United States as it paid before, it still pays the same taxes internationally that it paid before--there's no change to the taxes. The single biggest change is that a company or its shareholders have access to cash overseas upon which they've already paid taxes that they can then distribute to their shareholders, which by the way it will be taxed again when it gets distributed as dividends."
"I don't look at it [inversion] as a strategic imperative for us," he said, "We don't feel constrained from a capital allocation standpoint to sustain our dividend or appropriate levels of share buyback or M&A activity, et cetera, at least as far as we can see forward today." He also said decisions about inversion should take into account the likelihood of tax reforms, which he believes is sorely needed, adding, "Everyone seems apologetic about inversions. I'm not."
White seemed a bit skeptical on the M&A front too, saying there aren't too many attractive options available and that it is hard to deliver a good return to shareholders on large takeovers.
"In an ideal world I'd like to see more in our medical device business," the CEO said, but he doesn't "see a very robust group of opportunities out there either. I don't think there's as many opportunities today, either small, medium or large, as there were 5, 6, 7 years ago." But he emphasized throughout the call that Abbott was ready to strike if a deal presented itself.
White said that the company's medical device unit, consisting mostly of vascular devices (but also diabetes and eyecare products), must grow faster. "It would seem that the one remaining business that's not growing at the corporate rate is vascular," said Wells Fargo's Larry Biegelsen during the call, and the CEO didn't disagree, saying later that Wall Street analysts "properly call it out."
"It's no secret there are some areas of the business we've got to pay more attention to strategically, not so much because they're weak, but because they need new shots of life, and I'd say vascular has been identified that way," White said.
Following the divestiture of the company's developed market generics portfolio to Mylan, Abbott's rebalancing in the wake of the spinoff of its research-based pharmaceuticals unit will be complete, the CEO said: "We're at the point where we want to be with our existing businesses."
The sale will leave Abbott depending on med tech for half or more of its revenues. Based on 2013 earnings, the generics unit will contribute 15%, with nutritionals and a small animal health unit rounding out the rest of the sales.
More commentary about the transaction and Abbott's sales will be revealed during the company's quarterly earnings released tomorrow, July 16.
- listen to the conference call (reg. req.)
Special Report: 2013's 10 highest-paid Med Tech CEOs - Miles White - Abbott Laboratories