Spinoff Odds and Ends: Pfizer’s Consumer Business, La Quinta Award Winning Idea

Grab your cup of coffee and kick off the week with some Odds and Ends:

1. Late last year, Pfizer (PFE) announced it was considering its ‘options’ for its consumer health division. The early buzz was all about a sale though and the maker of Advil and Centrum has since been running a sales process with a rumored desired price tag in the $15-20b range. Interested parties have included GlaxoSmithKline (GSK) and Reckitt Benckiser (RGBLY), but both suitors pulled out of the process in late March. Proctor & Gamble (PG) emerged as a potential bidder shortly thereafter, but it ended up buying Merck’s (MRK) smaller consumer business instead. The question now is if Pfizer sticks to its price and can’t find a buyer, what happens to the consumer health business? Pfizer says it’s still considering its options, but a simple answer could be that the company just hangs onto the business. Maybe they can even grow it a bit further and find a buyer later. Another idea is to expand the pool of buyers (if they hadn’t already) to large private equity firms which are supposedly sitting on lots of dry powder these days. Of course, another option being tossed around is a spinoff of the division. Pfizer once carved out its animal health division, Zoetis (ZTS), so it’s familiar with the transaction. Even with the reduced corporate tax rates, there are still tax benefits in pursuing a spinoff vs. an outright sale. This situation still seems up in the air, but a decision from the company is expected this year.
2. We want to wish a hearty congratulations to Andrew Walker of Yet Another Value Blog (that’s how we know him) for winning the best idea contest at the 2018 Sohn Conference. The winning idea was a long in La Quinta Holdings (LQ) partially based on its upcoming taxable spinoff of CorePoint Holdings. Please read his piece (and supplemental materials) for all of the details, but in short, he thinks there is a lot of upside in LQ today prior to its takeover by Wyndham (WYN) being completed that isn’t being priced in. He even suggests management might even be sandbagging the potential upside due to a quirk in the deal structure surrounding the tax payments. The upcoming hotel/real estate related spins seem to be getting a lot of attention from the investment world. A group of heavyweights put their stamp of approval on this one – what do you think?

Disclosure: Author holds no position in any stock mentioned.