Pfizer's Big Deal Still Elusive as Company to Shed Consumer UnitBy
After failed merger attempts, no transformative M&A yet
Shares have trailed industry peers for the past five years
Pfizer Inc.’s move to offload its consumer-health division could bring in billions of dollars and help the drugmaker streamline operations. Yet the company-changing deal investors have been hoping for may be still to come.
The U.S. drug giant, which abandoned a plan to split in two last year, has tried -- and failed -- to orchestrate hundred-billion-dollar-plus mergers that would have allowed it to move its address overseas to secure a lower tax rate. Now, with tax reform being debated in Congress, Pfizer could consider another large deal to bolster its development pipeline.
“They have not been shy about discussing the possibility of transformative M&A along with smaller deals too,” said Ashtyn Evans, an analyst at Edward Jones & Co. “If they think it can create value for their shareholders, I think they’ll go for it. We’ve seen them look at big deals in the past, and we think they’ll continue to consider big deals.”
Pfizer’s consumer unit, with sales of $3.4 billion last year, markets well-known brands including the over-the-counter pain pill Advil, ChapStick lip balm and the dietary supplement Centrum. In a statement Tuesday, the drugmaker said it could sell or spin off all or part of the business.
Pfizer will report earnings later this month, and the plan to sell the division will almost certainly still be a topic. There are several potential buyers who could value the unit at around $13 billion to $17 billion, said Rosie Edwards, an analyst with Berenberg. Companies like Reckitt Benckiser Group Plc, Nestle SA, GlaxoSmithKline Plc, Johnson & Johnson and Sanofi could be interested, according to her note.
Pfizer’s shares rose 0.7 percent Tuesday in New York, closing at $36.40. The stock has underperformed its industry peers since 2012.
“There’s been some frustration about the stock performance over the past few years and we’re waiting for some changes to help drive some shareholder value,” said David Heupel, a health-care analyst at Thrivent Financial for Lutherans, an investment firm that holds Pfizer shares.
Selling or spinning off the consumer unit is not “out of the ordinary for them,” said Evans, who rates the stock a buy. Pfizer has trailed other drug companies because it hasn’t developed blockbusters as quickly as its top sellers have lost their patents, she said. Mergers would be one way to boost sales, she said.
Earlier this year, Pfizer Chief Executive Officer Ian Read cited the lack of clarity on tax reform as a key factor in restraining deal activity.
“We will continue to evaluate deals,” he said. “We never say never, but I believe the current environment needs to stabilize in order to be an advantageous market for big deals.”
This isn’t the first time the U.S.’s biggest drugmaker has flirted with breaking off parts of itself. In 2013, Pfizer spun out its animal health business into Zoetis Inc. through a stock offering, months after selling its infant nutrition business to Nestle for $11.9 billion.
Last year, Pfizer announced it wouldn’t go ahead with a plan to break up its core drug units into two separate companies, one focused on newer, innovative medicines and the other on established products and foreign markets.
The consumer unit is “distinct enough from our core business that there is potential for its value to be more fully realized outside the company,” Read said in Tuesday’s statement.
The world’s drug giants often go through periods of expansion and contraction, buying up companies to add to their pipeline of experimental drugs or bolster revenue, then splitting off pieces to focus their businesses or pay down debt.
Pfizer’s consumer-health division has operations has 10 brands with more than $100 million in 2016 sales each, and its revenue rose 5 percent last year. The company has been rebuilding in over-the-counter drugs since selling off an earlier consumer health business in 2006.
Pfizer’s decision last year not to split the company up followed the collapse of its attempted $160 billion merger with Allergan Plc that would have let it shift its tax domicile to a lower-rate home abroad. In 2014, the U.S drugmaker walked away from an about $120 billion attempt to buy British drugmaker AstraZeneca Plc. Read has since said that Pfizer needs clarity around U.S. tax reform before pursuing another large deal.
— With assistance by Phil Serafino, and Jared S Hopkins