Pfizer Inc. (PFE), the world’s largest drugmaker, is offering investors a share exchange to reduce its 80.2 percent stake in Zoetis Inc. (ZTS), the animal-health business that the company spun off almost four months ago.
Pfizer shareholders will have the option of swapping their shares for Zoetis stock in a tax-free transaction, New York-based Pfizer said in a statement today. If the exchange is fully subscribed, Pfizer will no longer have a controlling interest, leaving Madison, New Jersey-based Zoetis fully independent.
The exchange would end the latest stage of Pfizer Chief Executive Officer Ian Read’s plans to slim down the company and concentrate on producing new drugs. Pfizer agreed in April 2012 to sell its baby food unit to Nestle SA (NESN), the world’s biggest food maker, for $11.9 billion. Zoetis shares have risen 29 percent since trading started in February after an initial public offering.
“The proceeds from the IPO plus the Pfizer share reduction from this exchange will more than offset the lost income from Zoetis,” Mark Schoenebaum, an analyst with International Strategy & Investment Group LLC in New York said in a note to clients. The timing was sooner than expected, and a positive for Pfizer because it should add to earnings next year, he said.
The exchange also advances Read’s effort of cutting Pfizer’s shares outstanding and boosting earnings per share through moves including stock buybacks.
“Given the strong demand in the IPO and a favorable market environment, we concluded that now is the appropriate time to distribute our remaining stake in Zoetis,” Read said in today’s statement. The transaction “better positions Pfizer to focus on our core business as an innovative biopharmaceutical company.”
Pfizer shares rose 1.8 percent to $29.30 at the close in New York. Zoetis climbed 1.5 percent to $33.55.
The Pfizer shares will be exchanged at a 7 percent discount subject to an upper limit of 0.9898 shares of Zoetis stock per Pfizer share. If the limit isn’t in effect, $100 in Pfizer shares will be worth $107.52 of Zoetis, Pfizer said.
The exchange offer is scheduled to end on June 19 when the exact ratio will be announced, Pfizer said in the statement. JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley will manage the deal. Skadden, Arps, Slate, Meagher & Flom LLP acted as legal adviser.
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