Business World

Thursday 13 December 2018

Dashed deal may not be a bitter pill for Pfizer to take

Major Irish employer could yet spin off consumer arm of its business

Pfizer's attempt to unload its consumer-health business has fizzled
Pfizer's attempt to unload its consumer-health business has fizzled

James Paton, Naomi Kresge and Jared S Hopkins

Pfizer's attempt to unload its consumer-health business has fizzled, but hanging on to the division a while longer may not be a headache for the world's largest drugmaker.

British pharmaceutical giant GlaxoSmithKline, the final prospective buyer, withdrew from the bidding on Friday, ending for now a sale process that began in October.

Reckitt Benckiser Group, another potential buyer, pulled out earlier this week.

The future of the business, which was valued at as much as $20bn (€16bn), is up in the air. Pfizer, which employs 3,200 people in Ireland, could spin it off into a separate company, or keep it until it can fetch a better price from a single buyer.

The drugmaker said in a statement last Friday it will continue to review its options and expects to make a decision this year.

Waiting too long could be costly. Changing consumer habits are pushing down prices of everything from cough medicine to lip balm. As retail giants Amazon and Walmart reshape shoppers' expectations, the margins of consumer-health businesses are likely to be pinched.

"The world has changed," said Michael Leuchten, a London-based analyst with UBS Group. "That means these businesses or assets probably won't be able to fetch the multiples they have in the past." Despite the tectonic shifts in the retail world, Pfizer's consumer business, which includes Advil and heartburn reliever Nexium, continues to bring in cash. Sales, which totalled $3.47bn last year, grow about 2pc to 4pc a year, and the division accounts for a good portion of the company's dividend, according to John Boris, an analyst with Suntrust Robinson Humphrey who advises holding Pfizer shares.

"If you're going to spin it off, that's a whole different animal," Boris said.

"There's a higher probability they end up holding onto it. I think they were pretty set on that they were going to sell the business."

Jeff Jonas, a portfolio manager at Gabelli & Co, who holds Pfizer shares and said that he was hoping for a sale, said a spin-off could allow the company to avoid taxes it would have to pay in a sale. It could also take with it a healthy amount of Pfizer's $43.5bn in debt, Jonas said.

Pfizer has fared well in shearing off business units in the past: In 2013, it spun its animal-health business Zoetis off to shareholders, and the stock has since more than tripled in value.

Pfizer has faced pressure from investors to make deals and grow its pipeline. A proposed $160bn merger with Allergan was scrapped after then US President Barack Obama's administration cracked down on so-called inversion deals. Pfizer also attempted a $120bn deal with British drugmaker AstraZeneca. A sale of the consumer business isn't crucial for Pfizer to complete a large merger, as the company has more than $30bn in cash.


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