Pfizer Nears Deals for Nutrition, Animal Health Units: Report

Updated from 6:43 p.m. ET to include response from Pfizer spokesperson.

NEW YORK ( TheStreet) -- Pfizer ( PFE) may be close to deciding on a sale of its baby nutrition unit and an initial public offering of its animal health business, The Wall Street Journal reported after the market close on Tuesday, citing unnamed sources.

While Pfizer CEO Ian Read has telegraphed the divestiture of both units since mid-2011, The Journal reports that the pharmaceuticals giant may announce a baby health sale to Nestlé for $9 billion as early as next week.

Meanwhile, Pfizer may hire JPMorgan ( JPM), Bank of America ( BAC) and Morgan Stanley ( MS) to lead an initial public offering of its animal vaccine and drug unit as early as this summer. The potential deals would be a boost to M&A and IPO markets, which have stalled in 2012.

In response to a query from the TheStreet, a Pfizer spokesperson said "with respect to the Animal Health business, we believe that a public transaction is most likely. That said, no decisions have been made at this point."

The spokesperson added in the emailed statement, "We view the future of Pfizer as a company with 2 distinct biopharma businesses along with a Consumer products businesses: 1. The Innovative Core and 2. Established Products."

The potential asset sales and IPOs -- Bloomberg data shows they took in $6.3 billion in revenue -- could mark a wider breakup effort by Read, who has spoken about Pfizer's re-commitment to its drug research and development as some of the company's key drugs, led by Lipitor, go generic.

In a March meeting, Goldman Sachs analyst Jami Rubin wrote in a report that Read hinted at a multi-year breakup of Pfizer far beyond his previously announced divestiture plans. Healthcare giants Abbott Laboratories ( ABT) and Covidien ( COV) have been pursuing multi-billion spinoff plans since last year.

"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 in a March 27 note to clients.

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 just the first step.

In July, CEO Read said that Pfizer was exploring strategic alternatives for its animal health and nutrition units. Tuesday's Wall Street Journal report signals that Danone of France and Mead Johnson ( MJN) could lose out in bids for Pfizer's nutrition business. The report also indicates that Pfizer would favor an IPO over a previously reported prospective sale of its animal health unit to Bayer for up to $18 billion.

"Read believes the most likely scenario to be a sale of Nutritionals and an IPO/split-off of Animal Health," wrote Rubin, who added that the company could boost earnings per share by using proceeds from the deals for share buybacks.

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 EPS.

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."

The final step, a full split of Pfizer's drugs businesses, could come in two to three years' time, with the possibility that the moves drive $5.7 billion in additional sales, adding 93 cents to earnings per share, according to Rubin.

In December 2010, Ian Read took over as CEO of Pfizer after the retirement of Jeffrey Kindler, and has led sweeping change. The company has revamped its drug R&D processes, launched dividend and share buyback increases and announced multi-billion dollar sale and spinoff efforts.

"In our view, Pfizer has emerged a new company, with significant execution still ahead but the important groundwork laid down. While 2011 was clearly a transformative year for Pfizer with sweeping catalysts that unlocked shareholder value, we continue to see significant and stock-moving catalysts ahead," wrote Rubin.

Previously, the company had been one of the most aggressive post-crisis M&A players, buying Wyeth in 2009 for over $60 billion and King Pharmaceuticals for $3.3 billion a year later. Overall, Pfizer has cut $230 billion worth of deals since 1987, according to Bloomberg data, which shows that its average acquisition is nearly $4 billion.

In 2011, Pfizer saw its profitability rise to a post-recession high of $12.8 billion on sales of nearly $67.5 billion.

For more on healthcare sector spinoffs see how a Covidien split continues the breakup of the Tyco empire. See 5 short sighted stock spinoffs for more on corporate breakups.

-- Written by Antoine Gara in New York.