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Pfizer Needs to Think About Splitting: Goldman

NEW YORK ( TheStreet) -- After cutting a string of mega mergers, Pfizer (PFE - Get Report) may be the next Dow Jones Industrial Average component to consider a breakup to unlock the value of its waning shares.

It's the thought that Goldman Sachs argues in a Tuesday research report, as others in the pharmaceuticals and healthcare space like Abbott Laboratories (ABT - Get Report) and Covidien (COV) pursue multi-billion spinoff plans. Already, Pfizer is headed in the direction of consolidation after putting its animal healthcare and baby nutrition units on the selling block.

After meeting with Pfizer Chief Executive Ian Read, Goldman Sachs analyst Jami Rubin says that the world's largest drug maker may take bigger breakup steps than just a sale of its animal health and nutrition units. "We recently met with PFE's CEO Ian Read, who expressed an openness to going further with separations beyond Animal Health and Nutrition if the conditions make sense... This, coupled with the CEO's openness to consider unlocking further value, could create an attractive situation with significant upside," wrote Rubin of the meeting.

If Pfizer were to undergo a full breakup Rubin expects it to occur in three parts, with a previously stated intention to separate the New York-based company's animal health and nutrition units being the first step. In July, CEO Read said that Pfizer was exploring strategic alternatives for its animal health and nutrition units. Recent media reports signal that Danone of France and Mead Johnson (MJN) could bid on Pfizer's nutrition business for $10 billion. March reports also signal that Bayer (BAYRY) could bid up to $18 billion for Pfizer's animal health unit.

Rubin added new twists to Pfizer deal rumors in his report of talks with Read. "Mr. Read believes the most likely scenario to be a sale of Nutritionals and an IPO/split-off of Animal Health, reiterating that "buybacks will be the case to beat," wrote Rubin.

In a split, Pfizer would be more focused on its growth oriented pharmaceuticals business and a stable generics business, argues Rubin, who sees the moves netting Pfizer 18 cents a share in earnings per share. A second step would then be a rationalization of Pfizer's organizational structure after the disposals with efficiency efforts likely to wrench out a $26 a share stock value that puts Pfizer on Goldman Sachs' "America's conviction buy list."
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