Replies to post #84200 on Biotech Values

[DewDiligence]

Accounting quiz: Consequent to ABT’s acquisition of Solvay’s drug business, ABT’s quarterly cash flow from operations will increase to a much greater extent than its quarterly EPS. Why?

Hint: the answer does not have anything to do with taxes or the elimination of duplicative overhead.

[DewDiligence]

ABT-Solvay addendum: ABT’s share price is up 6% since the deal was announced before the open on Sep 28, while the S&P 500 is fractionally down during the same period. This doesn’t mean much, of course, but it shows that ABT avoided the common kneejerk response that leads to a sell-off of the acquiring company in a large transaction.

An aspect of the ABT-Solvay deal that hasn’t received much attention is its tax efficiency. By making a large acquisition outside the US, ABT can deploy its idle cash in foreign subsidiaries without incurring the tax hit from repatriating the money.