During the company’s latest earning conference call, Mr. Read discussed the company’s plan to build two ‘core’ businesses within Pfizer – an innovative core and a value core. Here is how he envisions those businesses:
An innovative core focused on science and focused on selling and delivering education in a certain way and would have an exciting pipeline that would drive substantial growth, and certain shareholders would be — will have an appeal for that type of an investment. And then we would have a value company which has substantial cash flows, large divided capacity, big brands in Emerging Markets, more of a sort of traditional selling model, also with branded generics.
Each will have its own ‘distinct cost structures and operating drivers’, but it ‘will take the next few years to fully realize the potential of each.’ The last part is key as the timing for such a transaction seems to be in the ‘years’ category and not so much near-term. Some more on this subject from Mr. Read:
We’re going to — we look at this year as a year — as the decision year on how to structure those, how to indicate to you to give you further visibility, and then simply the work involved in order to have those businesses as entities with enough financial information to make decisions when we’re ready to make them would take 2 to 3 years because of the complexity of separating out the businesses. So what we would like to be — what we’re going to — what we’d like to do at some point in time, and we’ll take that decision this year, is to start to operate more independently those businesses, give you more visibility as shareholders and then assess what are the advantages and disadvantages of having these 2 core businesses housed in the same entity or not. And at that point, as we see that happen — and frankly, as we see the innovative core’s pipeline mature and as we take steps to continue to strengthen value core’s ability to have product growth inside certain segments of its product offering, that will inform our decision.
and some more:
But also, we want to take time as we go through the next couple of years to see how we strengthen both of those segments. We’re strengthening innovative core with a pipeline. We also want to look at how do we strengthen the value business at the same time.
So there you have it…a potential spinoff that will be 2 to 3 years in the making. Not surprising given Pfizer’s size and breadth, but I would expect management to tip their hands a bit beforehand. Obviously there are a lot of internal changes that have to get done for this to occur. In the meantime, there should be plenty of other opportunities to focus on.
Mr. Read also revealed that the company had yet to make a final decision regarding the company’s remaining 80% stake in Zoetis. The company is ‘actively assessing the best options to maximize value’ for shareholders in an ‘expedient and efficient manner.’ Many expected the company to ultimately distribute that stake to shareholders via tax-free spinoff, but it seems like the company may be considering some other plans or just waiting for a more opportune time. We will keep you updated.
Disclosure: Author holds no position in any stock mentioned.
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