There is no doubt that if Pfizer Inc. (PFE) is able to land a buyer for its massive consumer health business, which includes brands like Advil and Chapstick, the company will gather monumental proceeds that could help fuel M&A.
But under the surface, the decision also keeps the company's recently scratched plans to split into two separate companies alive.
"A sale of Consumer would help streamline PFE's focus on its core biopharmaceutical business and allow for it to then proceed more neatly towards trying strengthening both sides of the business, while keeping the option to split into two separate companies open for the future," wrote Vamil Divan of Credit Suisse in a note Wednesday morning.
Pfizer shares opened at one-year high Tuesday, Oct. 10, after the group said it was considering the sale of its consumer healthcare business. Centerview Partners LLC, Guggenheim Securities LLC and Morgan Stanley & Co. LLC are advising Pfizer on the review.
In September 2016 Pfizer said it had decided not to separate into two publicly traded companies. The company contemplated separating its low-growth generics from its patent-protected branded medicines.
New York-based Pfizer said the division, which had about $3.4 billion in 2016 sales and houses brands such as Advil, Chaptstick, Centrum and Preparation H, among others, was unique enough from its core operations to warrant consideration for sale. Any decision on the group would be decided next year, the company said, and may include a full or partial sale.
Credit Suisse estimates that a deal could be work between $11.8 billion and $13.9 billion, assuming an Ebitda multiple of 17 times to 20 times. The firm said the 17 times reflects an average of past consumer health deals, including Bayer AG's 2005 deal to acquire Roche AG's (RHHBY) consumer health unit (12.5 times Ebitda) and Sanofi SA's (SNY) €21.8 billion ($25.8 billion) asset swap with Boehringer Ingelheim to acquire the German company's consumer business (22.2 times).
While the deal for the consumer health business would leave these plans open for execution, Credit Suisse said a sale would likely not predicate a large M&A deal for Pfizer.
"We do not believe PFE needs the proceeds from a Consumer Healthcare sale to pursue either large scale or small scale M&A," the firm wrote. "We do, however, continue to believe PFE would like some clarity on the potential outcome of U.S. corporate tax reform before it would pursue a transformative deal."
Pfizer and Allergan plc (AGN) scrapped a $160 billion deal in April 2016 after the Treasury Department under President Obama announced new rules aimed at curbing corporate inversions. Inversions are a tactic employed by corporations where they adopt a foreign domicile, typically through a merger with a smaller firm, to take advantage of lower tax rates abroad. Allergan, which Pfizer was set to acquire, is domiciled in Ireland.
Pfizer's consumer health division has been a staple of the company throughout its 168-year history.
"Although there is a strong connection between Consumer Healthcare and elements of our core biopharmaceutical businesses, it is also distinct enough from our core business that there is potential for its value to be more fully realized outside the company," said CEO Ian Read in a statement.
Credit Suisse said it did not expect an update to the review for another six months.
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Editors' pick: Originally published Oct. 11.