Pfizer’s Sale Of Minority Stake In Animal Health Business Could Unlock Value

PFE: Pfizer logo

Pfizer (NYSE:PFE) is moving forward with its plan to spin off its animal health business as part of its strategy to increase focus on its core pharmaceutical business. The company, through an initial public offering will sell a minority stake in the new company, Zoetis, which it intends to make a standalone company by July 2013. Earlier, Pfizer considered selling the segment entirely, but ruled out the option as it would have resulted in a hefty tax bill.

Many are expecting the business to fetch a value in the range of $15 billion to $20 billion. Although unknown at this stage, the move could be followed by a share swap of Pfizer and Zoetis, or through any other form of distribution. [1]

We have a Trefis price estimate of $25 for Pfizer, nearly 13% above the current market price. The animal health business is part of Pfizer’s Diversified Legacy Drugs & Alliances division which, according to Trefis estimates, currently accounts for nearly 32% of the company’s value. The business has presence in more than 120 countries and generated more than $4 billion in revenue in 2011.

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We believe this move will help Pfizer focus on its core pharmaceutical business and create more value for shareholders, which could trigger an upside to the company’s stock price. For the past couple of months, the company has strategically trimmed its non-core assets. It recently agreed to sell its infant nutrition business to Nestle SA for a cash consideration of around $12 billion.

Further, the cash proceed received could be used to fund R&D expenditure to nurture the company’s pharmaceutical pipeline to combat patent cliffs. Alternately, Pfizer could look at inorganic growth to acquire new drugs.

Understand How a Company’s Products Impact its Stock Price at Trefis

  1. Pfizer Preparing For Stock Sale Of Animal Health Unit, Bloomberg, June 08 2012 []