Coverage: Pfizer weighs selling $15 billion consumer business

Pfizer Inc. said Tuesday it’s considering the sale or spin-off of its consumer health care business, shaking up the industry and potentially putting a headache pill to lip balm operation worth some $15 billion up for grabs.

Manas Mishra and Ben Hirschler of Reuters had the news:

The move comes as Germany’s Merck KGaA is also looking to divest its non-prescription products, including brands such as Seven Seas vitamins, which could be worth around $4.5 billion.

As aging populations and health-conscious consumers drive demand for self-medication, the fragmented consumer health sector has proved a fertile ground for deal-making in recent years.

Although consumer remedies sold over the counter have lower margins than prescription drugs, they are typically very long-lasting brands with loyal customers.

Pfizer’s consumer healthcare business, whose brands include painkiller Advil and lip balm Chapstick, had revenue of about $3.4 billion in 2016.

Industry experts said it could fetch some four times sales, implying a potential value of just under $14 billion, although two healthcare sector bankers said Pfizer was aiming for at least $15 billion.

Amie Tsang of The New York Times reported that Pfizer has unsuccessfully tried to make acquisitions recently:

That announcement came after Pfizer’s ultimately unsuccessful efforts to acquire the British pharmaceutical company AstraZeneca and Allergan, a drugmaker based in Dublin.

AstraZeneca rejected Pfizer’s bid as undervaluing the company. The attempted acquisition of Allergan — a $152 billion deal that Pfizer pursued to lower its tax bill in the United States — was abandoned after the Obama administration introduced new rules that removed the tax benefits of such so-called corporate inversions.

Pfizer said any decisions about the future of the consumer health care unit would come next year. It has engaged Centerview Partners, Guggenheim Securities and Morgan Stanley as advisers for the review.

Cynthia Koons of Bloomberg News reported that Pfizer’s stock has underperformed the market:

Pfizer’s shares rose 0.7 percent Tuesday in New York, closing at $36.40. The stock has underperformed its industry peers since 2012.

“There’s been some frustration about the stock performance over the past few years and we’re waiting for some changes to help drive some shareholder value,” said David Heupel, a health-care analyst at Thrivent Financial for Lutherans, an investment firm that holds Pfizer shares.

Selling or spinning off the consumer unit is not “out of the ordinary for them,” said Evans, who rates the stock a buy. Pfizer has trailed other drug companies because it hasn’t developed blockbusters as quickly as its top sellers have lost their patents, she said. Mergers would be one way to boost sales, she said.

Earlier this year, Pfizer Chief Executive Officer Ian Read cited the lack of clarity on tax reform as a key factor in restraining deal activity.