Bond market pants for Pfizer vet unit's debut offering

Zoetis sets up $3.65B bond transaction amid final prep for IPO
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Just watch Pfizer's leash on Zoetis growing longer. The animal health unit proved popular on the bond market Wednesday, with $30 billion in orders pouring in for a $3.65 billion four-part deal. Within hours, the order book had been built, Reuters reports, allowing Zoetis to tighten up its initial pricing guidance.

On the equity side, the Pfizer unit is days away from the launch of its $2 billion initial public offering, underwritten by JP Morgan, Bank of America Merrill Lynch and Morgan Stanley, Reuters says. For tax reasons, it starts with an equity-for-debt swap, in which Pfizer ($PFE) will hand over Zoetis shares to affiliates of the underwriters, in exchange for its own outstanding debt. And then the underwriters will sell those Zoetis shares, keeping the proceeds. (Previous reports put the size of the IPO closer to $4 billion.)

As soon as that exchange-and-sale happens, Zoetis will have a paw or two in the outside world. About 20% of the company, essentially. After that, Pfizer may distribute its remaining equity stake in Zoetis to shareholders, tax-free. And at that point, the leash comes off.

With Zoetis on its way to independence, Pfizer is a step closer to that whittled-down structure CEO Ian Read envisioned in 2011, when he announced plans to divest the company's animal health unit and its nutritionals business. The latter is in the process of being sold to Nestlé.

Up next, apparently, is some internal restructuring and line-drawing, to sequester the on-patent prescription drug operations from the "established products" business, which encompasses off-patent Pfizer drugs and other generic products.

A conversation about that internal consolidation, reported by Bloomberg earlier this week, set off a new round of Pfizer breakup chatter. Some analysts envision Pfizer hiving off everything but its prescription drug operations. But whether the company ends up shedding its generics unit--with or without its consumer health operations--remains to be seen. Perhaps for years.

- read the Reuters news

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