Pfizer Inc. (PFE - Get Report) has finally decided against splitting into two public independent companies, and in doing so, investors could very well see Ian Read's pharmaceutical company turn to further dealmaking to fuel growth in both its Essential Health and Innovative Health businesses.
After scrapping its $160 billion plans to merge with Allergan plc (AGN - Get Report) , Pfizer in April said it would make a decision by years' end as to whether it would it would break up its established, older drug product portfolio that makes up Essential Health, and its newer, patent-protected drugs, otherwise known as Innovative Health.
Pfizer, which has for several years evaluated a possible split up, disclosed last month that it has spent $600 million evaluating such a transaction. A spokeswoman told The Deal, a sister publication of TheStreet, Monday no outside advisers were used in connection with that evaluation. According to the Monday, Sept. 26 announcement, the valuation gap between Pfizer's current market valuation and an implied sum-of-the-parts market valuation has closed.
Pfizer shares, listed on the New York Stock Exchange, retreated about 1.7% to $33.69 a share during Monday morning's trading session.
Monday's announcement comes after the pharmaceutical giant on Aug. 30 emerged as the victorious suitor for Medivation Inc. (MDVN) , announcing a $14 billion deal for the highly sought after cancer drug developer. Pfizer earlier in the year agreed to buy atopic dermatitis drug developer Anacor Pharmaceuticals Inc. (ANAC) for $5.2 billion in a move to strengthen its inflammation and immunology business.
While Pfizer officials declined to comment on the decision Monday, a company spokeswoman pointed to the M&A strategy reiterated by executives at the Morgan Stanley Global Healthcare Conference on Sept. 13.
Following its purchases of Medivation and Anacor, Pfizer CFO Frank D'Amelio explained that company would have no bias in terms of pursuing an acquisition that fits into its Innovative business as opposed to one that aligns with its Essential Health business. With expected net debt of about $20 billion give or take by years end, D'Amelio emphasized that Pfizer has continued capacity to do deals.
"In terms of valuation, any metric that you name, I guarantee my team and I are looking at," D'Amelio told attendees of the conference.
The probability the board would call for a break-up waned as a result of the absence of larger-scale, transformative M&A, according to a recent note published by John T. Boris of SunTrust Robinson Humphrey Inc. Before failing to merge with Brent Saunders' Allergan earlier this year, Pfizer in 2014 had failed to combine with Astrazenca plc (AZN - Get Report) for $118 billion.
"Based on PFE's lackluster organic top-line growth prospects and limited operating leverage, we think that PFE needs to pursue either a large, transformative acquisition or a string of several acquisitions to firm up its Innovative Health (IH) business before the company can be broken up," Boris wrote.
The analyst at the time suggested that Pfizer ought to reevaluate a potential deal with Astrazeneca.
No outside financial or legal advisers word retained in connection with Pfizer's evaluation of a split up, according to the company spokeswoman.
EDITORS' NOTE: This article was originally published by The Deal, a sister publication of TheStreet that offers sophisticated insight and analysis on all types of deals, from inception to integration. Click here for a free trial.