US-based Eli Lilly plans to divest its non-core business, and make an initial public offering later this year for a new medical devices company which has annual sales of some $800 million. Lilly previously declared its interest in hiving off its six medical devices operations, and will now group five of these into a new company to be called Guidant, but sell Ivax separately.
The restructuring is designed to restore profits hurt by a slowdown in the sales of several products, including the antidepressant Prozac (fluoxetine). A spokesman said that after a review, it was felt it would be better to sell Ivac apart from the other divisions being spun off, because it operates in different markets than the five which are in the cardiovascular sector.
Analysts feel that Guidant could be worth $1.5-$2 billion, based on the stock prices of comparable public companies. Based on the $800 million revenues in 1993 of the five Lilly units, the new company would have been among the 500 largest American industrial firms last year. They also noted that a number of medical device companies were selling at higher prices in relation to earnings than Lilly and other drug markers, but Steven Gerber of Oppenheimer said the initial price of Guidant might be discounted because institutional investors often unloaded shares of spinoffs that might not meet their requirements for dividends and earnings history.
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