Pfizer (PFE) has agreed to sell the division that houses its baby formulas to Switzerland's Nestle (NESN.VX), becoming the latest move in a series of big deals that have reshaped the drug company over the years, but investors didn't appear to care too much.
The sale of Pfizer Nutrition is valued at $11.85 billion and continues a busy time for asset swaps in the health care industry. The Pfizer subsidiary had sales of about $2.1 billion last year, and Nestle is expecting the business to have revenue of $2.4 billion in 2012. Nestle's existing infant foods and nutrition line has several brands, including Gerber.
Pfizer CEO Ian Read said in a press release that after the sale, the company would plan to use the after-tax proceeds on stock buybacks or on other business-development options. Thus far, stock holders were of the take-it-or-leave-it mindset. Pfizer's shares were down 14 cents to $22.42, suggesting the takeaway is that this particular deal isn't likely to be a game-changer. And The Wall Street Journal rightly pointed out that the nutrition business made up only a small part of Pfizer's $67.4 billion in revenue last year. (In 2012, analysts are on average looking for sales of around $62.1 billion.)
While Pfizer is near a 52-week high, it's still well below its glory days. Investors and Wall Street of course want a reason or reasons to get genuinely excited about Pfizer, whose shares have not been able to enjoy the prosperous times they did in the late 1990s. Pfizer peaked around $50 at the end of that decade, then spent the next couple of years largely in the $40s. However, you have to go back to early 2002 to find the last time Pfizer was above $40 a share.
On the plus side, FactSet data show that going back two years, Pfizer is one of the better stocks on the Dow Jones Industrial Average (^DJI), with a price increase of 34.6%. That puts it in the top one-third of the 30-stock index. Over five years though, the story reverses, with Pfizer showing a decline of 16.4%, placing it in the lower third of Dow components. Looking back 10 years, the shares are down 40.3%, a performance better than just three DJIA stocks. Pfizer does pay its owners a dividend, but there too, the road has been a bit rocky. This year, the company is expected to pay out 88 cents a share (22 cents a quarter), down from a high of $1.28 in 2008, but up from 72 cents in 2010.
For Pfizer, large M&A transactions have become something of the norm in the past decade-plus. In 2000, Pfizer tied up with Warner-Lambert, a buy that brought it the blockbuster cholesterol fighter Lipitor, for years the world's best-selling prescription drug until it went off patent in the U.S. Then in 2003, it bought Pharmacia, and in 2009, it purchased Wyeth.
Major sales have included the offloading of its consumer health care business to Johnson & Johnson (JNJ) and the disposition of the Schick-Wilkinson Sword shaving line to Energizer Holdings (ENR). Next up, the company is looking to part ways with its animal health unit, which may be worth another $15 billion to $20 billion and could be spun off, according to a Reuters report.
So for now, it's out with the baby formula, and the pet care may be next. More to come.
We want to hear from you. Is Pfizer moving in the right direction? What do you think the company should do for investors? Are asset sales and stock repurchases the way to go?