Pfizer offers share exchange to grant Zoetis its freedom

CEO Ian Read

Pfizer is cutting the apron strings at Zoetis. Just months after its highly successful IPO, in which Pfizer ($PFE) sold off a 20% stake, the animal health business is set to become fully independent. Pfizer is offering a stock swap to its shareholders, who can exchange $100 in Pfizer shares for roughly $107 worth of Zoetis stock.

It's the latest round in Pfizer's ongoing slim-down effort. Back in 2011, CEO Ian Read announced plans to shed Pfizer's nutrition unit and animal health business to provide more focus on its core drugmaking operations. Since then, Pfizer has sold its nutrition business to Nestlé for $11.5 billion and launched that Zoetis IPO, which raised $2.2 billion. Zoetis shares hit the market at $26 per share, above the offering range of $22 to $25.

Ironically enough, Zoetis had been outperforming Pfizer's drug business, at least in sales growth. The animal health unit's 2012 sales grew by 6% to $4.3 billion, while the prescription drug business, plagued by patent expirations, saw revenue drop by 9% (excluding currency effects). In its first quarterly results since the spinoff, Zoetis beat analyst estimates with $1.09 billion in revenue and earnings per share of $0.33.

"We are pleased with Zoetis's performance since the IPO in February," Read said in a statement announcing the exchange offer. "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."

Read also reiterated the Zoetis spinoff's importance to Pfizer's renewed focus on biopharmaceuticals. The question now is whether Read wants an even tighter frame. He's designated the branded business as Pfizer's "innovative" core and the generics-plus-consumer health side as the "value" core, and one company executive recently said Pfizer plans to separate the two chunks operationally. That was catnip to analysts looking for a bigger Pfizer breakup.

Pfizer's streamlining plans haven't gone unnoticed by the rest of the pharma world, either. Abbott Laboratories ($ABT) spun off its pharma business, AbbVie ($ABBV), into an independent company at the first of the year. GlaxoSmithKline ($GSK) CEO Andrew Witty recently said he'd be segmenting some older products into a new division with separately-reported financials, triggering talk of a spinoff.

- see the Pfizer release

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