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Why Pfizer (PFE) Should Take the Plunge in Selling or Spinning Off Its Consumer Healthcare Biz

11/15/2016 6:27:20 AM

Why Pfizer Should Take the Plunge in Selling or Spinning Off Its Consumer Healthcare Biz November 15, 2016
By Mark Terry, Breaking News Staff

Only last week, there were rumors that Pfizer (PFE) was considering selling or spinning off its consumer health division. This follows an early fall decision to not split into two companies. Keith Speights, writing for The Motley Fool, outlines his reasons why Pfizer should unload its consumer healthcare business.

Speights notes that when Pfizer decided not to split, much of the rationale was that staying together would be better for shareholders. His argument is that shareholders would benefit from a sale or spinoff of the consumer healthcare business, which includes products like Chapstick and Advil. The division has annual sales of about $3.5 billion, and analysts believe a sale could run about $14 billion.

“My view is that Pfizer could put the $14 billion or so that it has invested in its consumer healthcare business to better use,” Speights writes. “That amount coincidentally matches what the company paid to buy Medivation (MDVN). Now, Medivation’s Xtandi is one of Pfizer’s key sources for future growth. Unlocking the money currently tied up in the consumer healthcare business could allow Pfizer to make more growth-oriented investments.”

If so, should it sell or spin it off?

There’s certainly some precedent for a sale. In 2014, Merck (MRK) sold its consumer healthcare business to Bayer. It used the money to make other acquisitions, such as Cubist (CBST) and Afferent Pharmaceuticals. One of the key advantages was simply that there was a buyer with cash ready to pony up.

Reckitt Benckiser in December 2015 indicated it was interested in an acquisition of Pfizer’s consumer health products. Reckitt Benckiser already sells Nurofen painkillers and Durex condoms. It unsuccessfully tried to buy Merck’s consumer unit, and before that, paid $482 million to Bristol-Myers Squibb (BMY) to license some of its Latin American consumer health brands.
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Of course, Bayer (BAY) might also be interested. And Sanofi (SNY) has indicated in late 2015 that it wanted to grow its consumer health portfolio through acquisitions.

Speights notes that there can be some tax advantages associated with a spin-off, but if there’s an eager buyer with cash, that might be the way to go.

Speights writes, “At this point, it’s anyone’s guess what Pfizer will do. I think, though, that parting ways with its consumer business might be more palatable than spinning off its legacy drugs unit. Selling to consumers requires a different business model and mindset than selling prescription drugs. That could tilt the decision more toward a sales or spin-off of the consumer healthcare business.”

Pfizer stock is currently trading for $32.38. It’s been something of a volatile year for the company. A lot of that volatility is likely related to politics. It was going strong when everyone thought the Allergan (AGN) acquisition was on track, but when the U.S. Department of Treasury created a new set of rules to scuttle the deal, shares dropped. Most recently, shares popped shortly after the election, but have settled somewhat. Shares traded on November 8 for $28.56, rose to $37.31 on August 1, and dropped to $29.89 on November 3. They rose to $33.49 on November 10 before dropping to today’s value.

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