LONDON, UK / ACCESSWIRE / September 27, 2016 / Active Wall St. blog coverage looks at the headline from Pfizer Inc. (NYSE: PFE) as the company announced on September 26, 2016, that in its own financial interest, its Board of Directors and Executive Team had decided to continue with the current organisation structure and had forsaken its plan to slice up Pfizer into two separate publicly traded companies - Pfizer Innovative Health and Pfizer Essential Health. Register with us now for your free membership and blog access at: http://www.activewallst.com/register/.
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Decision to stay a single complete unit
Pfizer, having weighed its options, felt that being a complete unit is strategically and financially beneficial in the long run. In current market conditions, the split would lead to disruption of operations, increase inherent costs and fail to be beneficial in terms of tax efficiencies.
Hence, Pfizer Innovative Health and Pfizer Essential Health will continue to be a part of Pfizer Inc., however, they will be managed separately as two different businesses. Innovative Health deals with new and speciality drugs and Essential Health is focussed on the generics and biosimilars business.
Pfizer Inc. would be allocating indirect expenses for each business unit which would be reflected in its Q1 2017 reports. The company has assured that the decision will not affect its earnings guidance for 2016.
Commenting on the decision, Ian Read, Chairman and Chief Executive Officer said:
"We believe that by operating two separate and autonomous units within Pfizer we are already accessing many of the potential benefits of a split – sharper focus, increased accountability, and a greater sense of urgency – while also retaining the operational strength, efficiency and financial flexibility of operating as a single company as compared with operating as two, separate publicly traded companies. We will continue to generate the financial information necessary to preserve our option to split our businesses should factors materially change at some point in the future."
The discarded plan
Pfizer's business has grown not only in terms of finance and market share, but also in terms of operational complexity. Pfizer's decision to split the businesses into two was driven by the goal to unlock trapped value for its shareholders. It had sold off non-core businesses, including its animal health business in 2013, so as to streamline the entire business to fall under these two units. The idea had germinated a couple of years back when Pfizer felt that Innovative Health and Essential Health would be worth more as separate companies than as a part of a single company.
Pfizer's Innovative Health and Essential Health have delivered solid year-over-year performance in the last three years, including robust performance in 1H 2016. This had boosted the belief that these two could exist as stand-alone companies and compete with others in the sector. Pfizer had visualised these as leaders in their respective markets.
The backdrop
Rumours of the split restarted when Pfizer terminated its acquisition of Allergan in April 2016 due to the new US tax inversion rule, which negated any tax benefits arising out of shifting the company's corporate headquarters overseas.
Rumours of the split have been doing the rounds since 2012 mainly due to the financial aspect. Earlier the sales from Pfizer's patent-protected drugs were on the rise whereas its generic drug sales were not spectacular. In recent times, the scenario has changed completely, as many of Pfizer's drugs have lost patent-protection and therefore losing revenues and business to generics. Pfizer is strategically strengthening both its patented drugs as well as generics drugs business with planned acquisitions. Pfizer had agreed to acquire Medivation Inc. (NASDAQ: MDVN) in August 2016 to gain access to its successful prostate cancer drug Xtandi. In September 2015, Pfizer had completed the acquisition of Hospira Inc. which helped it gain access to generic injectable drugs and biosimilars market. It has also invested heavily in R&D facilities and laboratories.
For the moment, the company plans to stay as it is; however, it has not completely ruled out revisiting this decision in the future. With a clear agenda, Pfizer can concentrate on expanding business and maybe look at more acquisitions.
Stock Performance
Pfizer's stock is trading slightly down by 1.81%, closing Monday's session at $33.64. A total volume of 29.51 million shares exchanged hands, which was higher than the 3 months average volume of 19.76 million shares. The stock, which had been on an upswing since April 2016, reached its peak price of $37 in August 2016. The company's shares gained 7.09% since the beginning of the year. Additionally, in the last three months and previous six months, shares of the company have advanced 0.35% and 13.89%, respectively. The company's shares are trading a PE ratio of 29.85 and have a dividend yield of 3.57%.
Moody's Investors Service revised the rating outlook for Pfizer Inc. from negative to stable with the expectation that Pfizer will sustain positive underlying revenue and earnings growth, solid credit ratios, and large cash holdings.
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