Thursday, March 30, 2006

Pfizer weighs consumer products division options

Pfizer, the drug giant, is considering strategic alternatives for its consumer products division, which makes household products such as Listerine. The WSJ reported yesterday that GlaxoSmithKline and Colgate are expected to bid on the unit. Pfizer is targeting a price of $14 billion.

"A straight sale would nonetheless create a considerable tax bill for Pfizer, meaning that the effective sale price would be far lower than the "headline number" first reported. Buyers would have to submit bids high enough to offset some of those tax effects."

Pfizer is contemplating an outright sale or a spin-off. It seems to me that spin-off may make more sense if valuations on an outright sale don't seem to be coming in correctly. We have seen two pretty large spin-offs in the insurance space (GE spinning off Genworth) and (Fortis spinning off Assurant). Both have been successful. Pfizer could wait for the right valuation to sell its remaining stake in a follow-on when the time is right.

In other news, BusinessWeek offered further insight on the sale of spin-off issue. The article sites one banker who has looked at the deal and feels that Pfizer will spin-off the asset to shareholders so it can avoid a large tax hit. BW further justifies the need for an outright cash sale given the size of Pfizer's cash balance.


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