Abbott Laboratories (NYSE:ABT) filed to sell 35 million shares of Mylan NV (NASDAQ:MYL) stock on Monday as the Illinois-based pharmaceuticals giant made its first step toward unwinding its 22% stake in MYL. Mylan stock was down 4% in afternoon trading Monday.
Should MYL investors be worried? Does ABT see something that Mylan doesn’t?
To fully understand today’s movements, we first need to revisit how ABT obtained such a large percentage of Mylan common stock to begin with.
A Brief History of Abbott and Mylan
Abbott sold its overseas developed market generic drug business to Mylan in July 2014, receiving 105 million shares of MYL stock in a $5.3 billion, all-stock deal. The deal made a lot of sense for Mylan and was mostly done for tax purposes: Buying that part of Abbott’s portfolio allowed MYL to reorganize in the Netherlands, knocking down its effective tax rate to 21% from 25%. Longer-term, that rate should tick down to the high-teens.
Not only was the deal immediately accretive to Mylan’s earnings at the time, but it was expected that it would roughly double Mylan’s revenues in Europe overnight.
As for Abbott, the July 2014 deal was simply a calculated financial decision. After all, ABT is increasingly focusing on building its emerging markets portfolio, because that’s where the growth is. Given the uncertain state of the eurozone, a divestment that lowers exposure to that part of the world looks pretty wise less than a year later.
So, what’s the deal with ABT unwinding its MYL stake today?
In short, it never planned on being a long-term shareholder in Mylan stock anyways; it said as much from the get-go. Abbott stated that it wanted to take the proceeds from the Mylan deal and reallocate them to higher-return projects, which is what the company will now be able to do after selling 32% of its stake.
I don’t blame ABT, either. In less than nine months, its MYL stake has soared 22%. It’s time to lock in some of those gains. Plus, let’s remember something fundamental to the deal here: Abbott sold its ex-U.S. developed markets generic business for a reason. By having a 22% stake in Mylan, Abbott still indirectly owns a chunk of the business it pawned off.
Going forward, ABT is ensuring it won’t have the Yahoo! Inc. (NASDAQ:YHOO) and Alibaba Group Holding Ltd (NYSE:BABA) dynamic where one stock is largely dependent on the other to drive returns. ABT stock never allowed it to get to that point, but at Friday’s closing price of $61.63 per share, ABT’s 110 million MYL shares accounted for 9.6% of Abbott’s valuation.
Bottom Line
I wouldn’t read too deeply into today’s MYL stock selloff. I expect a few more secondary offerings from ABT in the next year or two as it continues to unwind its position and invest in more attractive projects.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
