Pfizer‘s (NYSE:PFE) subsidiary Zoetis, which operates Pfizer’s animal health business, has filed initial public offering (IPO) documents with the U.S. Securities and Exchange Commission (SEC). The move is seen as Pfizer’s next step toward trimming non-core assets as part of its strategy to increase focus on its core pharmaceutical business. The company is looking to offload up to 20% stake for $1000 million even as it is unclear at this stage as to how much valuation the company is expecting for Zoetis. ((Zoetis™ Files IPO Registration Statement, Pfizer News Release, August 13 2012))
We, however, expect the business to fetch a value in the range of $15 billion to $20 billion, which at the lower end doesn’t seem expensive given the fact that the business has presence in more than 120 countries with nearly 9,000 employees and generated more than $4 billion in revenue in 2011. For that kind of valuation, Pfizer’s divestment in animal health business should be well below 1%. Alternatively, the IPO amount could be much bigger than 100 million if the company decides to divest 20% at our expected valuations. The IPO could be followed by a share swap of Pfizer and Zoetis or through any other form of distribution.
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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 cash consideration of around $12 billion. The company last year sold its Capsugel pill unit to private equity giant KKR for nearly $2.4 billion.
We believe these moves will help Pfizer focus on its core pharmaceutical business and create more value for shareholders. 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.
While we currently have a $25 price estimate for Pfizer, 5% above the current market price, we are in process of revising our price estimate to reflect the recent developments and the earnings. In our model, 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.