Pfizer Nutritions Sale Signals Buybacks, Enhanced Core Focus
Pfizer's (NYSE: PFE) announcement that it has an agreement to sell its Nutrition business to Nestlé for $11.85 billion in cash has given rise to expectations share valuation catalysts through share repurchasing as well as a renewed focus on core operations.
The announced price was significantly up compared to the $9 to $11 billion that circulated last week, perhaps suggesting the buyer's anticipation to get their hands on a business with potential. The price was roughly 5.5 times the 2011 sales of $2.1 billion, which was an increase of 15% from the year before.
JP Morgan saw added added upside to what had been an anticipated positive development for the company. “While expected, we nonetheless view this sale as a positive and a key first step in unlocking value for PFE shareholders. With the company successfully navigating through the Lipitor patent expiration, we see Pfizer entering a new product launch cycle and see the divestiture of non-core assets (such as nutritionals) and likely continued increasing return of cash as catalysts from here.”
Goldman Sachs sees the deal being 3.6 accretive to 2013 EPS, assuming 35% EBITDA margin and sales of $2.5 billion. “If PFE brings this back to the US to buy back stock, PFE would have to pay a tax equal to the difference between the US tax and the foreign tax rate,” says the report Goldman Sachs hints at possible tax strategies that Pfizer may put into play to increase US cash available, as well as a potential upside from tax regulation reforms next year, which may result in lower taxes than currently feasible.
In addition to impacting the shares of the two deal participators, the sale may present implications for competitors in the Nutrition space. Shares of Mead Johnson Nutrition (NYSE: MJN) are trading 3.3 percent lower on the announcement of the deal. Having possibly been outbid by Nestle in the deal, a Nestle-owned and more focused ex-Pfizer Nutritions may pose a bigger competitive risk to Mead Johnson than ever.
PFE aren trading 0.8 percent lower from Friday's close, possibly because the added core focus contributed from this deal does not completely offset impending drug patent expirations in the eyes of investors.
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