Abbott Laboratories to spin off nutrition unit amid formula litigation pressure

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Abbott nutrition unit spin-off

Highlights

Abbott Laboratories will spin off its nutrition unit, including Similac, through a tax-free transaction as litigation pressures mount in the infant formula sector.
Abbott and Mead Johnson face 1,700 lawsuits involving 12,700 infants, with Abbott having paid $670 million in August and $385 million to the Department of Justice in September.
Abbott shares dropped over 4 percent pre-market Wednesday and remain down more than 20 percent in 2024, reflecting sustained weakness in its nutrition division.

Separation plan and legal backdrop

As reported by Financial Times, Abbott said on Wednesday that the nutrition business will be better positioned to focus its resources more strategically as an independent company. The unit is known for Ensure and Glucerna nutritional shakes as well as the Similac baby formula brand.

Abbott is the latest company to pursue a separation in a nutrition sector hit by product recalls and class action litigation in recent years. Reckitt Benckiser said in 2024 that it was considering strategic options for Mead Johnson, its nutrition business, but has yet to divest the asset.

Abbott and Mead Johnson together face 1,700 lawsuits involving claims on behalf of 12,700 infants alleging that their baby formula contributed to necrotising enterocolitis, a serious bowel disease. Abbott agreed in August to pay $670 million to settle claims brought on behalf of about 2,000 children who developed bowel disease after using Similac, while continuing to deny wrongdoing.

In September, Abbott also paid nearly $385 million to the U.S. Department of Justice to resolve a False Claims Act case related to contamination at a Michigan plant. The company said shareholders will receive shares in the new listed entity through a tax-free spin-off, and Abbott Nutrition executive Daniel Salvadori will lead the business as chief executive.

Investor reaction and sector implications

Weakness in Abbott's nutrition division has weighed on the broader group's recent performance. Its shares fell 10 per cent in a single session in January, marking the company's worst trading day since 2002.

Abbott shares were down more than 4 per cent in pre-market trading on Wednesday, leaving the stock down by more than a fifth so far this year. The separation is likely to sharpen investor focus on the financial impact of litigation, product quality controls and brand performance across the infant formula and medical nutrition market.

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