Covidien (NYSE:COV) today consummated the spinout of its pharmaceutical business by announcing the launch of Mallinckrodt plc (NYSE: MNK) on the New York Stock Exchange. MNK shares opened today at $45.94 and were down 2.7% to $44.69 as of about 2:10 p.m. COV shares, which opened at $57.16 this morning, were down 8% to $57.84 as of about 2:50 p.m.
The spinout officially marks Covidien’s rebirth as a pure-play medical device company, a transition that Covidien originally announced in December 2011. The pharma and medtech divisions were both strong, the company noted, but were operating under "distinctly different business models, sales channels, customers and capital requirements."
"In addition, their respective innovation pipelines differ substantially in length, regulatory approval requirements, possible risks and potential returns," Covidien said of the separation. "The spin-off will enable both businesses to pursue their own strategic and operational plans, including setting optimal levels of investment in research and development and creating business-appropriate capital structures."
Mallinckrodt may have just made its way onto the NYSE, but the company’s story begins in 1840 with the purchase of a plot of land in Missouri that was to become the its 1st factory. The company was officially founded in 1867 and had operated as a subsidiary of Covidien. Mallinckrodt employs about 5,500 worldwide and is an industry titan in radiopharmaceuticals, contrast media, and delivery systems, according to its profile.
The pharma business represented about 20% of Covidien’s annual sales, notching about $9.9 billion in revenues in 2012, according to a press release. Newly formed Mallinckrodt holds 1st or 2nd market positions most of its categories, Covidien noted, but the business was struggling with little-to-no growth as part of Covidien.
As promised Mansfield, Mass.-based Covidien issued 1 share of Mallinckrodt stock for 8 shares of COV stock to interested investors, will all distributions scheduled for completed on June 28.
At the time of the separation announcement, CEO José Almeida said Covidien had been considering a separation for years and decided to pull the trigger now that the pharma unit has been fine-tuned.
"We’ve evaluated whether to separate these businesses for several years, due to the major differences between the medical products and pharmaceutical industries. We believe that now is the right time to do so because we have significantly improved the operations, performance and pipeline of our pharmaceuticals business," Almeida said. "While both businesses hold industry-leading positions, they have distinctly different business models, sales channels, customers, capital requirements and talent bases. In addition, their respective innovation pipelines differ substantially in length, regulatory approval requirements, possible risks and potential returns."