Pfizer Inc. (PFE) is likely to divest its animal health unit through a combination of an initial public offering and an exchange of shares with current stockholders, Chief Executive Officer Ian Read said.
“We’re probably going to exchange, part of it will be sold for stock in the open market, part of it will be swapped for Pfizer shares,” Read said today at the company’s annual investor meeting in Morristown, New Jersey. He said that no final decision has been made on how to shed the business.
Pfizer, the world’s biggest drugmaker, is divesting the animal health unit, with $4.18 billion in revenue last year, as part of Read’s plan to focus the New York-based company on developing new drugs. On April 23, the company announced an agreement to sell its infant nutrition business to Vevey, Switzerland-based Nestle SA (NESN) for $11.9 billion.
A public offering of as much as 20 percent of the value of the animal health business would let Pfizer take cash from the unit without triggering a large tax penalty, said Erik Gordon, a business professor at the University of Michigan in Ann Arbor. The company could then exchange Pfizer stock for shares in the new animal health company.
“That reduces the Pfizer share count, and that helps Pfizer on EPS and dividend coverage,” Gordon said in an e-mail. Read has said share buybacks are the first priority for using the company’s spare cash. A share exchange would achieve a similar result in cutting the amount of stock outstanding.
Pfizer gained less than 1 percent to $23.06 at the close in New York.
Joan Campion, a spokeswoman for Pfizer, declined to provide more details on the exact timing of a transaction, only saying that the company plans to make an announcement this year and complete any change by July 2013.
Pfizer needs new products as it enters an era without Lipitor, the cholesterol pill that lost patent protection in 2011 after generating $9.58 billion in revenue. The company doesn’t have a medicine in its pipeline that will replace all of Lipitor’s sales by itself. Instead, Pfizer is trying to fill the hole with several products, including two under review by U.S. regulators for possible approval this year.
Along with cutting units, Pfizer is shrinking expenses. Read has said he plans to eliminate another $1 billion from the company’s costs this year, focusing on what the drugmaker describes as selling, informational and administrative costs. Severance packages for workers who are fired are to be cut in May, as part of that plan.
The drugmaker is scheduled to report first-quarter earnings on May 1.
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