We originally bought Baxter as a special situation. At the time of purchase, the company was undergoing a corporate restructuring that would split the business into two publicly traded companies, Baxter (BAX) and Baxalta (BXLT). The old Baxter paid a decent dividend and was a reliable dividend grower.
After completion of the split, both new companies would pay a dividend but the combined amount was expected to be less than what the old pre-split company paid. Following the split, many existing BAX shareholders sold out of the company because they were now receiving a lower dividend.
We bought old Baxter after it paid its last dividend as a combined company. As new shareholders, we would not be experiencing the post spin-off dividend cut, and believed that the new Baxter would again start growing its dividend once the spin-off was complete. It did.
After the spin-off, we received our shares in Baxalta at a cost basis of $29.72/share*. Baxalta immediately started receiving buyout offers from other Pharmaceutical companies. Shire PLC ultimately won at a per share offer price of $46. We received cash and shares in Shire PLC which we immediately sold.
The new Baxter International (BAX) received a boost post spin-off when a well-known hedge fund, Third Point, took a large position in the company. The hedge fund liked the new CEO Jose Almeida who previously ran Covidien another healthcare spin-off, between 2012-2015. He grew Covidien quickly before ultimately selling the company to Medtronic in mid-2014.
We had a post spin-off value of $42/ share for Baxter (BAX). By the time of our sale, shares had exceeded this level. The stocks of two other companies that we are interested in buying are nearing attractive entry points. Because Baxter was trading above our estimate of fair value, we sold it to have the cash ready to facilitate any new investment.
*Based on original purchase of pre-spin-off BAX in client accounts
