Pfizer has "no interest" in separately divesting individual products from its consumer division, CEO Hank McKinnell said during a Feb. 10 analysts presentation.

The firm is aiming for the third quarter of 2006 to decide whether to cash out, spin off or keep its thriving consumer business, which includes the Listerine oral antiseptic brand, Benadryl allergy treatments and the Visine eye care line.

Pfizer would drive a hard-bargain for an outright sale, executives' comments suggested.

"This is the right time to undertake this review, given the premium the marketplace is placing on similar large, high-quality consumer businesses," Vice Chairman David Shedlarz said.

McKinnell outlined the possibility of a spin-off of the consumer business, which based on comparable businesses "could trade at over $10 bil."

Currently, "the median multiple of stock-price-to-2005 earnings for consumer healthcare companies is 21," Shedlarz explained.

Applying this multiple to Pfizer Consumer Healthcare, the unit "could be valued as a stand-alone business at more than $10 bil.," Shedlarz said.

A "straight spin" would mean each Pfizer shareholder would get a certain number of shares in the new venture, McKinnell said.

"There's also something called a 'split-off' that we are looking at, which is kind of a spin plus a share repurchase program. That may be an option."

"Finally, somebody may preempt it" with an outright purchase offer, McKinnell said.

However under an acceptable offer, "we would have to realize the same after-tax $10 bil. our shareholders would realize, by somebody essentially compensating us for the tax cost of the transaction, which would be significant," the CEO explained.

The review is intended to "unlock the value of the business for Pfizer shareholders at a time when market valuations are attractive for large, high-quality consumer businesses," he added.

McKinnell suggested the purchase price may be driven above the $10 bil. mark.

"My guess is we'll be surprised in the upside here; these kind of properties don't come along very often."

Since a Feb. 7 announcement that the firm is reviewing the business, there has been "very high interests here from a large number of the usual suspects," McKinnell added.

"I don't think the private equity guys are players here," McKinnell added, "but maybe."

Buyers who might be interested in the business include consumer products firms Procter & Gamble, Unilever and Colgate.

The portfolio also could appeal to Wyeth or GlaxoSmithKline. Listerine would complement Glaxo's AquaFresh oral care line, and the unit would expand Glaxo's presence in strong U.S. brands.

During a Feb. 8 call, Glaxo's CEO noted with caution that the firm would consider acquisitions at this time.

While the firm set a third-quarter timeline for a decision, McKinnell said Pfizer expects to get more clarity on its options in the next two months.

The review of the consumer business is a major element of Pfizer's strategy to leverage cash flow going forward, in the face of projections that 2006 will be flat in terms of revenue and earnings growth.

Pfizer's Consumer Healthcare division revenues grew 10% in 2005 to $3.9 bil. worldwide.

In contrast, Pfizer's human health, or pharma division sales, declined 4% over the year to $44.3 bil.

A sale would boost Pfizer earnings short-term in the face of the weaker pharma performance. The firm projected a return to revenue growth from pharma in 2007.

McKinnell suggested the firm is looking for a deal that would benefit shareholders quickly.

In the case of a sale, the firm would consider putting the cash toward share repurchase or dividends.

Shedlarz underscored the consumer unit's "well-balanced" portfolio.

Other Pfizer OTCs include Rolaids and Zantac stomach remedies, the Sudafed decongestant line, Rogaine hair regrowth treatment and Neosporin first-aid products.

The exec also cited the unit's high margins, stable cash flows, and broad geographic presence, with roughly even presence in the U.S. and international markets.

Despite the consumer business' strength, "we aren't giving up a lot strategically," McKinnell maintained.

McKinnell hinted in comments last April that the consumer division might be on the table for review during the "transition year" of 2005.

The exec cited divestitures as a significant part of the firm's strategy and strong growth in the consumer division, and noted: "it's a great time to be a seller" (¹ Also see "Pfizer Consumer Business Not Critical During “Transition” Year" - Pink Sheet, 11 April, 2005., p. 5).

Since then, Pfizer has made efforts to streamline the division, reducing sales forces and consolidating advertising for small and low-growth brands (² 'The Tan Sheet' Oct. 24, 2005 In Brief).

Pfizer also has carefully tended its OTC brand portfolio.

For example, they brought an innovative delivery form to the Listerine Brand with the introduction of PocketPaks strips in 2000 (³ Also see "Cool Mint Listerine PocketPaks Breath Strips Slated For Summer Launch" - Pink Sheet, 28 February, 2000., p. 3).

The firm purchased the hand sanitizer Purell from GOJO industries in 2004 (⁴ Also see "Pfizer Consumer Health Looks To Clean Up With Purell Buy" - Pink Sheet, 11 October, 2004., p. 11).

In addition, Pfizer led marketers of pseuodoephedrine products in reformulating with phenylephrine as PSE restrictions at the state and retail level proliferated last year (⁵ Also see "Leiner Expands OTC Portfolio With Phenylephrine HCl, Ibuprofen Offerings" - Pink Sheet, 29 November, 2004., p. 14).

- Christopher Walker

Pfizer Eyes Consumer Unit Spin-Off Or Sale Price North of $10 Bil.

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