Seeing Value in Baxter International Inc (NYSE:BAX) and Baxalta Inc (NYSE:BXLT)

May 12, 2016

Baxter Baxalta

Portfolio Manager Glenn Busch of American Money Management says his firm bought Baxter International Inc (NYSE:BAX) and Baxalta Inc (NYSE:BXLT) stock before the spinoff, seeing value in both companies.

We bought them before the spinoff, again another special situation. We bought into that because Baxter announced they’re going to split, both companies were going to pay a dividend, but the total dividend of the two companies is going to be a little bit less than what they’re previously paying before as a whole company.

So we saw selling pressure from the past kind of dividend-growth investors saying, “Well, there’s no longer dividend growth; I don’t want these two different companies,” so we saw the selling pressure, and so we bought in right before the spinoff, seeing value in both Baxalta and Baxter. We weren’t experiencing any decline in dividends; we were actually just basically starting even. Once they spun off, Baxter — Third Point got involved, too — they brought a new CEO who helped build up Covidien and then sold Covidien. So we saw that as a positive, so we held on to Baxter, and they were still going to pay their dividends.

And then with Baxalta, we saw with all their drugs and their biologic line that there was value there for a larger pharmaceutical company that may want to come in and buy them out, and right away, they started getting offers.