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The Deal: Pfizer's 3-Way Split Preps Company Long Term

Frank D'Amelio, Pfizer's chief financial officer, gave a succinct version of the new strategy's goal: "This is all about getting these three businesses to hum internally, to operate with excellence inside the company."

ISI Group analyst Mark Schoenebaum said in a research note that the three-split move "is really clever."

"If your entire goal is to move your stock by giving investors more clarity and allowing them to do a true sum of the parts," this is a great idea, he wrote. One of the three units could command a very high, biotech-like price/earnings ratio of 20 or higher, Schoenebaum suggests. He pegged Pfizer's P/E ratio now at about 12.5.

Dividing a diversified life sciences business into something closer to pure-play sectors and then doing a split or spin into separate companies has worked for several firms to build value in the core. Abbott Laboratories (ABT) spun off its research-based pharmaceuticals business, AbbVie (ABBV), taking it public in January. At the end of June, Covidien (COV) split off its drugs business, renamed Mallincrodt. Bristol-Myers Squibb (BMY) spun off Mead Johnson & Co.

Such reorganizations take a while, though. Abbott had announced plans to split in two as far back as October 2011. Covidien said it would make the move a few months later, in December 2011.

Pfizer already started the restructuring ball rolling by spinning out and taking public Zoetis, its animal health unit. Hiving off Zoetis through a combined initial public offering and share swap rather than an outright sale allowed Pfizer to avoid a potentially large tax bill.

The company has sold two other multibillion-dollar businesses, Capsugel for $2.4 billion in 2011 to Kohlberg Kravis Roberts and its infant nutrition unit for $12 billion to Nestle in 2012. Pfizer used the funds from those sales to buy back shares. The divestitures have helped salve the pain from Pfizer's loss of market exclusivity for its blockbuster Lipitor.

As for most of big pharma, Pfizer will continue to analyze and complete any "bolt-on" drug licensing deals and smaller acquisitions--or bigger ones--that it sees as filling out its pipeline and adding value to the company. Those will be managed company-wide, using staff with the necessary expertise from whichever unit is necessary, Read said. In 2014,the company will reveal more detailed statements for each of the three units.
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