Zoetis Chief Alaix Talks Spinoff, Animal Health Business With WSJ

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The WSJ publishes a weekly column titled ‘Boss Talk’ where it picks the brain of CEOs and other top brass from big companies. A few weeks ago the paper spoke with Mike Petters, CEO of Huntington Ingalls (HII), a spinoff from Northrop Grumman (NOC). This week the paper sat down with Juan Ramon Alaix, CEO of Zoetis (ZTS), which was split off from Pfizer (PFE) earlier this year via IPO. I guess the WSJ loves spins as much as we do!

In addition to speaking about the outlook of the animal health industry and his personal experiences, Mr. Alaix shared some of his thoughts on the benefits of being an independent company:

WSJ: What are the benefits of being separate from Pfizer?

Mr. Alaix: Now we have a single focus on animal health. The people working for Zoetis see direct impact between their actions and also the results of the company. Being part of a big pharma company, for a small unit, it’s very difficult to see the impact of our actions.

Makes sense after leaving a $200+b market cap behemoth. It hasn’t been all roses though:

WSJ: What are the strongest headwinds facing the company?

Mr. Alaix: The climate is having an impact. We had a significant impact in 2012 and the first half of 2013 from the drought in the U.S., which affected not only the U.S. but all international markets because the price of grain increased by 40% or 50%. This had a significant impact on the livestock producers and many of them reduced the herd.

I would also say, managing the complexity of the separation. An analogy is, it’s much easier to get married than work through a divorce.

 

WSJ: When will you get past that transition?

Mr. Alaix: The areas where we have the longest periods of time in terms of dependency on Pfizer will be in information technology. It will take between 24 to 36 months to complete all the processes.

It’s not often that you see spinoffs equated to divorces! I guess Pfizer retained custody of the the IT…but this answer highlights some of the unexpected challenges companies face in setting off on their own. Incredible that the the untangling is considered as strong a headwind as something that had a major impact at its customers.

While the company experienced a nice post-IPO pop, the stock hasn’t moved much since then. A few months after the IPO, Pfizer disposed of the rest of its stake via an exchange offer which may have created an overhang. The future is bright though according to Mr. Alaix who predicts the company ‘can post at least 6% average annual revenue growth over the next five years.’ It will be interesting to see if any of its competitors, which remain embedded within larger companies, decide a spin makes sense for them as well.

Disclosure: Author holds no position in any stock mentioned

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