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Pfizer's Spin on Spinoffs a Turnoff

NEW YORK ( TheStreet) -- Pfizer (PFE - Get Report) may have led some investors to the exits on Thursday when the giant pharmaceutical company made official the divestiture plans for its animal health and nutrition businesses.

Shares reacted negatively to news that everyone on Wall Street had already taken for granted: It's considering strategic alternatives for its animal health and nutrition businesses, that could include a spinoff or asset sale.

Pfizer shares closed 3% lower on heavy volume Thursday, with more than 85 million shares traded. The three-month average daily share volume for Pfizer is 44 million shares. Pfizer shares dropped sharply at the open and drifted down through the day.

A potential spinoff could be a payday for investors. It could also ultimately provide Pfizer with the cash to buy back shares and invest in a potential blockbuster drug. However, analysts say the potential payday for divestitures was already reflected in the 16% rise in Pfizer shares year to date.

In effect, it's back to the basics of the pharmaceutical business and the stock fundamentals, with Pfizer saying in print what's already been assumed by Wall Street.

"People haven't owned this stock for the R&D prowess it hasn't exhibited, but because they might be beneficiaries of spinoffs," said Les Funtleyder, health care analyst at Miller Tabak and manager of the Miller Tabak Healthcare Transformation Fund.

In this respect, Thursday's Pfizer trade was a classic sell-on-the-news-that's already-known event. However, there's a more negative way to read the Pfizer announcement, too.

For proof of the strategic alternatives being the "worst kept secret" on the Street, just look back at the last quarterly earnings conference call with analysts. The first question for new Pfizer CEO Ian Read, from Goldman Sachs analyst Jami Rubin, included these requests: "Share with us, if you have narrowed your options regarding strategic alternatives for your diversified businesses ... clarify what your plans will be if assuming you do spend or sell some of these businesses, what you will do with the cash proceeds?"

In answering the analyst question, Pfizer CEO Read said, "We are still reviewing all of our alternatives on the businesses outside of the core. We expect to start making some announcements during the second half."
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