|Trends & Perspectives|
Abbott Diagnostics (Abbott Park, IL) announced that it will be eliminating 1000 jobs during the next three and a half years. According to company officials, the purpose of this phased initiative is to streamline Abbott's global manufacturing operations.
“What we're doing is trying to further strengthen our core laboratory business and remain competitive in this changing market,” said Donald B. Braakman, an Abbott spokesman. “We need to address excess capacity, reduce overall costs, and generally improve efficiencies so that we can stay competitive. As we look forward, these are the things we need to address in our businesses to ensure that we can sustain the business and serve our customers as best we can.”
The job cuts will come from Abbott's facilities in South Pasadena, CA; Santa Clara, CA; and Lake County, IL. In South Pasadena, the company is currently manufacturing its clinical chemistry reagents. Braakman said that moving forward, Abbott plans to outsource the production of its chemistry reagents to third-party manufacturers. The company will complete this transition during the next two years so there will be no immediate employee impact at the South Pasadena plant.
Abbott's hematology business is based in Santa Clara, CA, which is where the calibrators and controls used in hematology testing are produced. As with the clinical chemistry reagents, the company will outsource these calibrators and controls to third-party manufacturers through the end of this year. According to Braakman, less than 15 positions will be affected this year at the Santa Clara facility.
At the Lake County, IL, plant, Abbott is also continuing to consolidate its diagnostic manufacturing operations. Some of the products that are currently being produced at this facility will be transferred to the company's diagnostic plants in Europe. Braakman said that while this transition will occur during the next three and a half years, there will be no significant impact to positions in 2008 and 2009.
Braakman added that these job cuts were not initiated due to any of these facilities or product lines underperforming.
“It's a matter of trying to realize efficiencies in our manufacturing processes and to address overcapacity,” said Braakman. “For example, the Lake County facility will continue to be the central location for our blood screening reagents. But we also have competencies and expertise at our facilities in Ireland and Germany. So some of the products being produced in Lake County will be transferred to those facilities. Part of this is also to address where a significant portion of our customer base is. We've got more than 50% of our customer base now outside of the United States in Europe. So part of the process of making our manufacturing more efficient is moving more products to locations that are closer to our growing customer base.”
Braakman also dispelled any notions about Abbott being approached by potential suitors interested in buying the company.
“There are a lot of rumors out there, but a lot of them I think are just rumors,” said Braakman. “Ed Michael, Abbott's executive vice president of diagnostics, pretty much said that we are not interested at this point in selling our diagnostics business. I think the message is loud and clear that our diagnostics businesses are important business for us, and we want to retain them and develop them within Abbott.”
In 2007, Abbott and General Electric Co. (GE; Fairfield, CT) reversed course on the blockbuster $8.1 billion merger deal they had announced earlier in the year. The two companies mutually agreed to terminate their agreement under which GE would have acquired Abbott's primary IVD and point-of-care diagnostics businesses. The two companies were unable to agree on final terms and conditions of the proposed sale.
According to Abbott officials, in addition to the complexity of the transaction, the key issue was that even if the transaction closed, there were going to be in place a number of transition service agreements between the parties for many years to come. When Abbott signed the agreement to sell its businesses, the company expected that period of time to be limited to a reasonable length, such as a couple of years.
However, as the negotiations got farther along and closer to the close date, the number of the transition service agreements increased, and it became clear that this would be an ongoing, long-term relationship and issue, which was not what Abbott had intended. Rather, Abbott wanted to sell the businesses in a clean fashion, which was not the way it worked out.