Pfizer Ponders A Move

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A few months ago, pharma giant Pfizer (PFE) got a boost when Sanford Bernstein analyst Tim Anderson (and a few other street colleagues) mentioned that company management was open to spinning off or selling parts of the business.  This set off a flurry of reports analyzing potential castaways with estimates ending up as high as 4 divisions shed representing over $20b of revenues. Not surprising, given that Pfizer is a perfect target for this analysis after expanding and swallowing up numerous other companies.

Just a few months later and it seems that while the essence of their prediction was correct, the magnitude might have been a little exaggerated as Pfizer announced last week that it was considering strategic options for only its Animal Health and Nutrition businesses.  After a lengthy review of their portfolio, the company and CEO Ian Read determined that only these businesses did not fit with core operations and would benefit from operating ‘outside the company’. As a result, it looks like the Consumer Products and Established Products divisions will be staying put.

The Animal Health division had revenues of $3.6b in 2010 and focuses on the development and manufacturing of products to prevent and treat disease in…wait for it…animals, such as livestock and pets. Big surprise there. The Nutrition division had revenues of roughly $1.9b in 2010 and provides formula and nutritional products to infants and young children. Both units have strong international presences and some growth, but combined represent less than 10% of the company’s sales.

The market was somewhat disappointed with the announcement as many investors were hoping for a more aggressive divestiture which included the aforementioned consumer and established products divisions. Not everyone is giving up hope on a bigger move though, with some viewing this announcement as just a ‘first step’.

One option for Pfizer could be to sell the units and some initial guesses indicate that a sale could bring in a nice haul. Credit Suisse analyst Catherine Arnold estimated the animal health unit could be valued at $12 billion and J.P. Morgan analyst Chris Schott said the nutrition unit could be worth $6.5-$8b in a separation from Pfizer. Another alternative could be a spinoff similar to Bristol Myers’ (BMY) spinout of Mead Johnson (MJN) which has fared very well. A spinoff could allow Pfizer to retain a stake in those operations and benefit if they succeed.

The company has hired outside advisers including JP Morgan and Morgan Stanley to evaluate its options, but don’t get too excited – no further announcements are expected until 2012 with a transaction following 12-24 months afterwards. We will keep you updated as more information is released.

Disclosure: Author currently holds no position in any company mentioned.

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