Biotech Values

[DewDiligence]

I skimmed through the [ABT] slide set* and I can't really tell what the business purpose is -- for [IRS code] 355 purposes, there is a distinction between a CORPORATE business and a shareholder business purpose. The fact that investment bankers and the company believe the spin will increase market capitalization is not by itself a corporate business purpose, it needs to be combined with something at the corporate level…

I’m glad you made this point! There is no bona fide business purpose for ABT’s spin-off, which is why I consider it a dumb move (#msg-68135262).

One of the most common business purposes is known as "fit and focus," meaning, the company thinks that management will perform better if each of the two businesses can focus on its individual business. So if the subsequent merger is inconsistent with that purpose, it may cast doubt on the original spin. For example, if fit and focus is the purpose and either the distributing or distributed company proceeds to merge with a diversified company, that seems to me to be a bit inconsistent with the purpose.

Quite interesting. Thanks again.

*See link at the bottom of #msg-68216224.