|Pfizer CEO Ian Read|
So, Pfizer. What's Plan B? That's what investors are asking, now that CEO Ian Read's $117 billion bid for AstraZeneca hit a wall--and the promised trifecta of lower taxes, cost savings and promising drugs along with it.
As Bloomberg reports, with no other triple-threat megamerger targets to hand, and an obvious need for growth, Read may fall back on his previous talk of a breakup. After all, that idea had analysts and investors pumped.
Before the AstraZeneca ($AZN) bids surfaced, the chatter about Pfizer's three-way internal split, announced last July, was full of anticipation. A successful nutrition-unit sale in 2012, and the much-heralded animal health spinoff last year, proved that Pfizer ($PFE) could reap billions by hiving off pieces of itself. Returning a big chunk of that cash via buybacks and dividends, as Pfizer hastened to do? Even better.
Plus, one new unit focused on established products, including generics and older meds, seemed destined for sale or spinoff in the near future. So, investors could reasonably expect more cash to join Pfizer's store.
Read could get investors excited about a breakup again, market watchers figure. At any rate, he'll do what's necessary to please investors, one shareholder told Bloomberg. "He'll do anything to get the stock price up," Jeff Jonas of Gabelli & Co. told the news service. "As long as he continues to have that view, he'll be fine."
There is one problem with that scenario, however. The margin numbers for the three new units--unveiled along with first-quarter earnings--didn't match investor expectations. As ISI Group analyst Mark Schoenebaum wrote in an investor note last week, Pfizer's lower-growth established-products unit delivered a higher margin than expected: an estimated 56%. The higher-growth units produced lower margins, in the mid-twenties. So, analysts recalculated their values for the three units altogether--and ended up with a total about 10% lower than previously, Schoenebaum says.
Those P&L calculations, and Pfizer's less-than-stellar first-quarter sales, may lend more credence to the idea of Pfizer going after a new deal. Bloomberg says Pfizer had weighed offers for Merck ($MRK) and Bristol-Myers Squibb ($BMY), though those may have just been internal exercises.
Which leads us back to the fact that AstraZeneca is a unique prospect for Pfizer. The U.K. company could decide to come to the table, now that time is running out. Pfizer still maintains that its latest offer is "compelling." If not, it's reasonable to expect the breakup talk to resurface.
- read the Bloomberg story
Special Reports: Top 10 pharma companies by 2013 revenue - Pfizer - AstraZeneca