Pfizer CEO Ian Read may have decided not to split the company up, but that doesn’t mean he isn’t looking at divesting units. Word is the company is considering doing something with its consumer health operations and that it could bring in $14 billion or more.
According to a Reuters exclusive, unnamed sources caution that a deal is not a certainty for the unit, which holds iconic brands like Advil and Centrum and which generated $3.5 billion in sales last year. There was no indication whether Pfizer ($PFE) was thinking of a sale, or maybe a tax-free spinoff like it used for its animal health unit Zoetis ($ZTS) some years back, or some kind of an asset swap.
Evercore ISI analyst John Scott told investors that the unit could potentially bring in even more than $14 billion. He pointed to the fact that when Merck ($MRK) sold its consumer health unit in 2014, it put it on the block at $10 billion. But the unit drew a lot of interest, and Bayer ended up paying more than $14 billion for it.
Scott said the Reuters report points to Pfizer’s continued “willingness to engage in corporate restructuring transactions,” even though its earlier inversion attempt and deal to merge with Allergan didn’t work out.
Read said as much in Pfizer’s third-quarter earnings call recently when he specifically addressed whether the company might sell the consumer health operation. He called it a valuable business that was growing well, “but like all our businesses, we all look at them and we subject them to tests of are they worth more inside or outside of Pfizer?” He said Pfizer will continue to run those tests.
That came as Pfizer was talking about third-quarter results in which sales grew 8% to $13 billion during the quarter but earnings fell 38% to $1.32 billion (21 cents per share) as company spending increased. Take out charges for acquisitions and other one-time events, and EPS totaled 61 cents per share, which missed analysts’ estimates by a penny, according to Zacks.
A number of companies have made significant efforts to grow their consumer health businesses, so if Pfizer does decide to divest--and goes the sales route--there might be any number of interested buyers.
When the option of breaking up Pfizer was still on the table last year, Rakesh Kapoor, CEO of OTC specialist Reckitt Benckiser, declared he would be "very interested" in Pfizer’s consumer health products if they went up for sale.
GlaxoSmithKline ($GSK) has put a big emphasis on consumer health since creating a JV with Novartis in an asset swap in 2014. But outgoing CEO Andrew Witty was then badgered by investors who believed the U.K. company should sell off the unit because of its slim margins. Witty has said the unit was big enough to “have a life of its own," but said if anything happened, it wouldn’t be this year or next. And this year the unit has outperformed earlier projections, quieting some of that talk.