That didn’t take too long to decide. During its latest conference call, Pfizer (PFE) indicated it was still mulling its options for how to deal with its remaining ~80% stake in Zoetis (ZTS), its former animal-health business whose IPO was earlier this year. The company had been considering a spinoff, but in the end it has decided to pursue an exchange offer in order to unload its stake. According to CEO Ian Read, the time is right for this transaction because ZTS is performing well, the IPO was oversubscribed and the ‘market environment’ is favorable. He also expects the exchange offer to ‘deliver value to Pfizer shareholders by reducing the number of our outstanding shares in a tax-efficient manner’ and for the unloading of Zoetis to be accretive to Pfizer’s 2014 earnings.
So how will it work? The company is offering PFE shareholders the chance to exchange PFE shares in exchange for ZTS shares in a tax free transaction. The twist? You will be able to get ZTS at a 7% discount, subject to an upper limit of .9898 shares of ZTS. Pfizer, which is converting all of its shares into Class A stock, currently holds over 400m shares or ~80% of Zoetis. At least ~160m shares would need to be exchanged for this transaction to go through and the final exchange ratio will be announced on June 19th. If undersubscribed, Pfizer would retain a stake in Zoetis and look to unload it again in the future via exchange offer or special dividend. I am not sure how likely that scenario is though.
A ‘free’ 7% is nice, although you never know how the names will trade during the exchange period. There might be some way to structure an arbitrage-type trade here, but there is the risk the transaction is oversubscribed and distributed on a pro rata basis. If you want to own some Zoetis, this could be a nice way to get in.
For all of our Pfizer/Zoetis coverage, click here.
UPDATE: I forgot to include these links in the initial version. The dedicated exchange offer site links to all of the major documents related to the transaction and tracks the VWAP, exchange ratio and whether or not the upper limit has been hit. If you are just interested in the prospectus, you can click here. This should satisfy all of your information needs.
Disclosure: Author holds no position in any stock mentioned.
Related articles
- Pfizer (PFE) to Split Off Remaining Interest in Zoetis (ZTS) (streetinsider.com)
- Pfizer Inc. plans to split from former animal health unit, Zoetis Inc. (mlive.com)
- Pfizer plans offering to pare Zoetis stake (seattletimes.com)
- Pfizer Announces Plan for Split-Off of Zoetis (dailyfinance.com)
- Pfizer to Split Off Rest of Zoetis (dealbook.nytimes.com)
- Pfizer May Be Thinking Spinoff…In 2016 (stockspinoffs.com)
