After months of assessing its options, Pfizer Inc. has decided to take the same route with its animal health unit that Bristol-Myers Squibb Co. took with its Mead Johnson Nutrition Co. nutritional business in 2009. The New York based pharma will begin the divestiture of the veterinary medicines business with an initial public offering of a minority stake.

Pfizer would not yet reveal the details of the IPO, but announced June 7 that it would call the new company Zoetis, with the “zo” being a root of zoology and the overall name being derived from the word zoetic, which means “pertaining to life.” The business typically makes medications and vaccines for pets and farm animals. Pfizer will continue to treat Zoetis as an operating unit of the company and will discuss further details of the offering on its second quarter conference call. Until then, Pfizer is under an SEC-mandated quiet period and is unable to comment on the IPO.

The animal health unit currently has about 9,000 employees and operates in more than 120 countries, including areas of North America, Europe, Africa, the Middle East, Latin America and the Asia-Pacific. It posted sales of about $4.2 billion in 2011 and analysts had valued the assets at about $15 billion had Pfizer decided to sell the business outright.

Yet, an outright sale would have presented tax consequences, while an IPO allows the company to avoid being taxed. It also prevents competitors like Merck & Co. Inc. and Eli Lilly & Co. – which both have strong animal health businesses with 2011 sales of $3.25 billion and $1.67 billion, respectively – from picking up some of the assets (see the In Vivo Blog for discussion of the ongoing competition).

While Pfizer did not say how much the minority stake would be worth or what it plans to do with the majority stake, Pfizer has said a stock-swap is an option for the remainder of the business. Current Pfizer shareholders likely will get the option to trade in their shares for Zoetis shares at a discounted price. This will allow Pfizer to reduce its share count by about 8%, ISI Group analyst Mark Schoenebaum estimates, if Pfizer sells off 20% of the business in the IPO.

A Well-Planned Strategy

After a strategic review led by then newly appointed CEO Ian Read, Pfizer announced in July 2011 plans to shed its nutrition and animal health units, to devote more resources to biopharmaceuticals Also see "Reading Into Pfizer's Changes: First Steps For New CEO" - Pink Sheet, 7 February, 2011.. In April 2011, it sold its drug formulation and delivery business, Capsugel, to private equity firm KKR for $2.4 billion in cash. With Read at the helm, the company also raised its dividend and vowed to be more proactive in buying back shares.

Earlier this year, Pfizer sold its international pediatric nutritionals business to Nestle SA for $11.85 billion, a price that reflected global infant formula players’ fierce competition for growth opportunities in emerging markets Also see "Pfizer Sells Nutrition Portfolio To Nestle For Nearly $12B" - Pink Sheet, 23 April, 2012.. Nestle managed to keep Pfizer Nutrition out of the hands of its competitors Danone and Mead Johnson with the deal announced April 23.

Pfizer Nutrition tallied 2011 sales of $2.14 billion, with 85% of the business coming from emerging markets such as China, Indonesia, Mexico, the Middle East and Thailand. Nestle projects the business, including brands such as S-26 first-year formulas and Promil Gold follow-on formulas, will continue at a 13% compound annual growth rate since 2009 and reach $2.4 billion in sales this year.

In an effort to continue the transformation, Read has vowed to make Zoetis an independent company by July 2013. The process mimics that which Bristol-Myers went through when it turned its pediatric nutritionals business into an independent company beginning in 2009 as it began the process of becoming a pure pharma play. Wall Street reacted favorably to the spin-off of Mead Johnson and the stock has continued to grow to trade at $81 as of June 7 from its IPO price of $24 in February 2009. Bristol-Myers was able to reduce its own share count by about 14% and increase its free cash flow Also see "Bristol Flying Solo As A Pure Biopharma After Mead Johnson Spin Out" - Pink Sheet, 16 November, 2009..

Pfizer Moo’ved To Split Off Zoetis Business By July 2013

More from Archive

More from Pink Sheet