Following the acquisition of Solvay, Abbott Laboratories plans to lay-off 3,000 global workers. The job cuts are part of Abbott's drive to achieve long-term goals and improve efficiencies, while at the same time increasing sales and per-share earnings. The company's broader strategy is to increase access to emerging markets and diversify its products in the hope of increasing industry growth.
The job cuts are a direct consequence of Abbott Laboratories' acquisition of Solvay, which was completed in February 2010 at a cost of $6.6 billion. In recent years, Abbott has avoided these cost-saving measures as its revenue and sales have continued to grow robustly, driven by its blockbuster anti-inflammatory drug Humira (adalimumab). However, with the purchase of Solvay, restructuring and improving profitability has emerged as one of Abbott's main objectives.
The lay-offs will stretch across many departments including manufacturing, commercial, R&D operations and administrative in different locations. Most of the cuts will encompass Europe-based positions that were integrated via the acquisition.
Abbott's decision to restructure comes at a time when many major pharmaceutical companies are facing the need for large-scale cost-saving measures. After a thorough assessment of Abbott's global pharmaceutical strategy, this plan was drafted to streamline operations, improve efficiencies and reduce costs. Indeed, Miles D. White, chairman and CEO of Abbott, said that the decision to restructure and employ such large-scale cost-saving measures is part of Abbott's long-term goal of "ensuring [that the company has] the technology, products, infrastructure and reach to serve patients globally and continue to deliver sustainable industry growth."
The company's acquisition of Solvay is intended to diversify Abbott's products so that it can become less dependent on Humira, so reducing the threat of generic erosion to other key small molecule brands. The deal, alongside its acquisition of the Indian pharmaceutical manufacturer Piramal, will also serve to increase Abbott's exposure to emerging global markets.
Although Abbott has not publically quantified the savings that would occur due to the lay-offs, expected earnings increases can been seen in its prior forecast from the Solvay deal. Based on this, the cuts will add $0.10 to its per-share earnings and help drive a 21.9% increase in sales in 2010.
In conclusion, Abbott will continue to produce strong operating profits over the near term despite the rising intensity of certain market pressures. The acquisition of Solvay and subsequent synergy realization will help maintain Abbott's operating profit margin above the 20% mark over the coming years.