Whither Tyco? Whither Hospital Supply?
Tyco International is creating a colossus in hospital supply. But as customers in this consolidated, nationalized market become more demanding--asking for brand name products at ever lower prices--has the strategy run its ground. The demise of American Hospital Supply and new, more high tech focuses of companies like Johnson & Johnson and Abbott Laboratories suggests that hospital suppliers to survive must concentrate on higher margin businesses immune to the pressures of national contracting.
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Is there a medical device company today doing better than Covidien? The company is making a huge splash building new businesses and shoring up existing ones. But Covidien, formerly Tyco, hasn't always had it so good. A corporate scandal in the early 2000s brought Tyco's corporate management down and scuttled the healthcare business' strategic plan. After years of sitting on the sidelines, Covidien is back, stronger than ever.
Abbott's announced spin-off of its hospital supply business suggests once and for all that a key medical device model of the 1980s is now dead. At the same time, it creates an enormous company with significant resources.
There's little argument that over the past several years, Tyco International has emerged as a powerhouse in the hospital supply and medical device industries through aggressive deal-making and a creative leveraging strategy that has enabled it to increase profits even in price-sensitive markets. Now Tyco, under pressure from fall-out over the scandal engulfing Enron, is breaking up in an effort to restore investor confidence and value. Some time in the future, Tyco Healthcare will operate as a stand-alone company. Yet questions loom large as to how well Tyco's strategy will play with the investment community, with some industry executives believing Tyco Healthcare has more value broken-up than as a public company.