New Pfizer Takes Shape

Updated from 7:56 a.m. EDT

Pfizer (PFE Quote - Cramer on PFE - Stock Picks) announced a big expected deal at a bigger unexpected price.

The New York drug giant said Monday that it will sell its consumer-health business, a mixture of nonprescription drugs and products such as Listerine mouthwash, to Johnson & Johnson (JNJ Quote - Cramer on JNJ - Stock Picks) for $16.6 billion. After taxes, Pfizer would net about $13.5 billion.

Although Pfizer's strategy has been clear for many months, some analysts said the deal reflected a more defensive posture by J&J.

The agreement, which must pass U.S. and European Union regulatory review, is expected to close by year-end. The deal appears to conclude a contest among several companies, including GlaxoSmithKline (GSK Quote - Cramer on GSK - Stock Picks), for Pfizer's consumer unit.

In February, Pfizer was still considering its options for the consumer-products unit that accounted for $3.9 billion, or about 7.5%, of $51.3 billion in sales last year. Pfizer wants to concentrate on prescription drugs, the part of its business that contributed $44.3 billion, or 86%, to last year's total sales.

Growing Demand

When Pfizer disclosed its intentions, analysts speculated that the consumer-products unit would be worth $8 billion to $12 billion, but later raised their estimates as high as $14 billion as bidding rumors blossomed. Pfizer officials had said the price of a sale would need to be higher than the price of a spin off because of tax considerations.

For J&J, over-the-counter products represent more sales and a bigger percentage of corporate revenue than at Pfizer.

J&J's consumer products, including Band-Aids and Tylenol, accounted for $9.1 billion, or 18% of revenue last year. J&J's other main businesses are prescription pharmaceuticals and medical devices and diagnostic products.

"We see the consumer health care markets as increasingly attractive growth opportunities as consumers take greater interest in, and responsibility for, their own health," said William Weldon, chairman and CEO of J&J. "In addition, higher levels of disposable income in developing nations are helping drive increased demand for consumer health products."

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