Baxter International Becomes Dan Loeb’s Newest Activist Target
2015-08-05 21:26:05.402 GMT
By Beth Jinks
(Bloomberg) -- Baxter International Inc. is being targeted
by activist investor Dan Loeb’s Third Point, which is seeking
two board seats and a say in the hunt for a new leader at the
medical-supplies company.
Third Point went public with its bid for changes at Baxter
on Wednesday, disclosing a stake of almost 10 percent in the $23
billion company, including stock and options. Third Point sees
Baxter as undervalued given its strong global franchise and
opportunities to boost profit margins, said a person with
knowledge of the matter.
After spinning off its drug business last month to create
Baxalta Inc., Baxter is at a turning point. Chief Executive
Officer Robert Parkinson, 64, told investors last week that the
company’s board had hired a search firm to find his replacement,
given his age and 11-year tenure at the company. And now that
the spinoff is complete, Baxter is in better position to look at
more deals, he said.
Baxter makes hospital supplies, such as infusion pumps and
surgical tools, and dialysis systems for kidney disease. While
Baxter shares have risen 11 percent since the spinoff, it has
still underperformed competitors, gaining 15 percent a year over
the past five years, compared with 23 percent for other medical-
supplies providers.
Its operating profit margin of 14 percent over the past
four quarters compares with 18 percent for Becton Dickinson &
Co. and 25 percent for CR Bard Inc., though each competitor has
a different mix of products, making it difficult to compare.
Cost Cuts
Particularly post-spinoff, the company has lots of
opportunities to get more efficient, cut costs and expand sales
to boost earnings, said the person with knowledge of the matter,
who asked not to be identified because the discussions between
Baxter and Third Point are private.
The activist fund met with Baxter officials at the
company’s Deerfield, Illinois, headquarters on July 30, and
again with lead director Tom Stallkamp at Third Point’s New York
office Tuesday, the person said. Third Point was critical of the
current board’s stock ownership, which it estimated at less than
200,000 shares, the person said.
The recent gains in the stock have perplexed Joanne
Wuensch, an analyst at BMO Capital Markets Corp.
“Quite honestly, with Baxter I’m scratching my head,”
said the analyst, who has the equivalent of a hold rating on the
stock. “I think what is being priced in at this stage is more
operating leverage than their guidance would indicate, a new CEO
that would provide better productivity and the access to Third
Point brain power.”
Willing Partner
In a letter to Baxter released publicly Wednesday, Third
Point said that in addition to the board seats and a role in the
CEO search, the activist investor seeks changes to corporate
governance. Billionaire Loeb praised Baxter’s “willingness to
consider new directors.”
Loeb, whose firm has almost a 10 percent stake including
amassed options it’s converting into stock, applauded the
company for spinning off Baxalta and for announcing a succession
plan for Parkinson. Third Point, which oversees about $18
billion, said it has more than $2 billion in economic exposure
to Baxter.
“We look forward to bringing our experience to the board
and helping to select a new CEO,” Loeb wrote. “We believe
there are several external candidates with the requisite
industry experience, leadership skills, and track record of
creating shareholder value who could ably take the reins at
Baxter.”
Baxter should consider former Covidien Plc CEO Joe Almeida
to replace Parkinson, Bank of America Corp. analyst Bob Hopkins
said last week in a note.
Constructive Talks
Baxter expects to maintain constructive talks with Third
Point and plans to keep listening to all shareholders, the
company said in a statement.
Loeb described the structure of Baxter’s board as
“shareholder-unfriendly and archaic” because its staggered
terms for directors mean only a few are up for re-election each
year. He also criticized Baxter’s “odd voting structure that
values shareholders individually rather than according to
economic interest.” The rare structure implies small
shareholders have the same voting clout as the largest
investors, such as Third Point.
“We believe most shareholders agree with our views and as
it turns out, so do you,” he said, referring to talks with the
company.
Baxalta has rejected an unsolicited offer from Shire Plc to
acquire the company for $30 billion in stock. Baxter maintains a
19.5 percent stake in Baxalta, which the company has said could
help fund its pension, pay down debt and repurchase shares.
Earlier Targets
While most of Third Point’s investments aren’t based on an
activist strategy -- where the fund seeks to force management
and boards to make changes that boost shareholder returns --
it’s those campaigns that attract the most attention.
Loeb’s firm has actively targeted at least two other
health-care companies previously -- biotech giant Amgen Inc. and
cancer drugmaker Ligand Pharmaceuticals Inc. It has run
campaigns for changes at companies as diverse as Dow Chemical
Co., Sony Corp., CF Industries Holdings Inc. and Yahoo! Inc.
When Third Point takes an activist position, the firm often
seeks directorships alongside influence in CEO selection. Loeb
noted in Wednesday’s letter that “we have been deeply involved
in the hiring” of executives including Ligand’s John Higgins,
Yahoo’s Marissa Mayer and Sotheby’s Tad Smith.
For Related News and Information:
Shire Seeks to Lure Baxalta Into Talks With $30 Billion Bid
Top Stories: TOP <GO>
--With assistance from Anna Edney in Washington.
To contact the reporter on this story:
Beth Jinks in San Francisco at +1-415-617-7141 or
bjinks1@bloomberg.net
To contact the editors responsible for this story:
Jeffrey McCracken at +1-212-617-8517 or
jmccracken3@bloomberg.net
Crayton Harrison, Stephen West
2015-08-05 21:26:05.402 GMT
By Beth Jinks
(Bloomberg) -- Baxter International Inc. is being targeted
by activist investor Dan Loeb’s Third Point, which is seeking
two board seats and a say in the hunt for a new leader at the
medical-supplies company.
Third Point went public with its bid for changes at Baxter
on Wednesday, disclosing a stake of almost 10 percent in the $23
billion company, including stock and options. Third Point sees
Baxter as undervalued given its strong global franchise and
opportunities to boost profit margins, said a person with
knowledge of the matter.
After spinning off its drug business last month to create
Baxalta Inc., Baxter is at a turning point. Chief Executive
Officer Robert Parkinson, 64, told investors last week that the
company’s board had hired a search firm to find his replacement,
given his age and 11-year tenure at the company. And now that
the spinoff is complete, Baxter is in better position to look at
more deals, he said.
Baxter makes hospital supplies, such as infusion pumps and
surgical tools, and dialysis systems for kidney disease. While
Baxter shares have risen 11 percent since the spinoff, it has
still underperformed competitors, gaining 15 percent a year over
the past five years, compared with 23 percent for other medical-
supplies providers.
Its operating profit margin of 14 percent over the past
four quarters compares with 18 percent for Becton Dickinson &
Co. and 25 percent for CR Bard Inc., though each competitor has
a different mix of products, making it difficult to compare.
Cost Cuts
Particularly post-spinoff, the company has lots of
opportunities to get more efficient, cut costs and expand sales
to boost earnings, said the person with knowledge of the matter,
who asked not to be identified because the discussions between
Baxter and Third Point are private.
The activist fund met with Baxter officials at the
company’s Deerfield, Illinois, headquarters on July 30, and
again with lead director Tom Stallkamp at Third Point’s New York
office Tuesday, the person said. Third Point was critical of the
current board’s stock ownership, which it estimated at less than
200,000 shares, the person said.
The recent gains in the stock have perplexed Joanne
Wuensch, an analyst at BMO Capital Markets Corp.
“Quite honestly, with Baxter I’m scratching my head,”
said the analyst, who has the equivalent of a hold rating on the
stock. “I think what is being priced in at this stage is more
operating leverage than their guidance would indicate, a new CEO
that would provide better productivity and the access to Third
Point brain power.”
Willing Partner
In a letter to Baxter released publicly Wednesday, Third
Point said that in addition to the board seats and a role in the
CEO search, the activist investor seeks changes to corporate
governance. Billionaire Loeb praised Baxter’s “willingness to
consider new directors.”
Loeb, whose firm has almost a 10 percent stake including
amassed options it’s converting into stock, applauded the
company for spinning off Baxalta and for announcing a succession
plan for Parkinson. Third Point, which oversees about $18
billion, said it has more than $2 billion in economic exposure
to Baxter.
“We look forward to bringing our experience to the board
and helping to select a new CEO,” Loeb wrote. “We believe
there are several external candidates with the requisite
industry experience, leadership skills, and track record of
creating shareholder value who could ably take the reins at
Baxter.”
Baxter should consider former Covidien Plc CEO Joe Almeida
to replace Parkinson, Bank of America Corp. analyst Bob Hopkins
said last week in a note.
Constructive Talks
Baxter expects to maintain constructive talks with Third
Point and plans to keep listening to all shareholders, the
company said in a statement.
Loeb described the structure of Baxter’s board as
“shareholder-unfriendly and archaic” because its staggered
terms for directors mean only a few are up for re-election each
year. He also criticized Baxter’s “odd voting structure that
values shareholders individually rather than according to
economic interest.” The rare structure implies small
shareholders have the same voting clout as the largest
investors, such as Third Point.
“We believe most shareholders agree with our views and as
it turns out, so do you,” he said, referring to talks with the
company.
Baxalta has rejected an unsolicited offer from Shire Plc to
acquire the company for $30 billion in stock. Baxter maintains a
19.5 percent stake in Baxalta, which the company has said could
help fund its pension, pay down debt and repurchase shares.
Earlier Targets
While most of Third Point’s investments aren’t based on an
activist strategy -- where the fund seeks to force management
and boards to make changes that boost shareholder returns --
it’s those campaigns that attract the most attention.
Loeb’s firm has actively targeted at least two other
health-care companies previously -- biotech giant Amgen Inc. and
cancer drugmaker Ligand Pharmaceuticals Inc. It has run
campaigns for changes at companies as diverse as Dow Chemical
Co., Sony Corp., CF Industries Holdings Inc. and Yahoo! Inc.
When Third Point takes an activist position, the firm often
seeks directorships alongside influence in CEO selection. Loeb
noted in Wednesday’s letter that “we have been deeply involved
in the hiring” of executives including Ligand’s John Higgins,
Yahoo’s Marissa Mayer and Sotheby’s Tad Smith.
For Related News and Information:
Shire Seeks to Lure Baxalta Into Talks With $30 Billion Bid
Top Stories: TOP <GO>
--With assistance from Anna Edney in Washington.
To contact the reporter on this story:
Beth Jinks in San Francisco at +1-415-617-7141 or
bjinks1@bloomberg.net
To contact the editors responsible for this story:
Jeffrey McCracken at +1-212-617-8517 or
jmccracken3@bloomberg.net
Crayton Harrison, Stephen West