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Pfizer plans offering to pare Zoetis stake

Linda a. Johnson, AP Business Writer

TRENTON, N.J. (AP) -- Drugmaker Pfizer Inc. plans to try to sell its controlling stake in its former animal health business, Zoetis Inc., through a voluntary stock exchange with Pfizer shareholders.

Pfizer, the world's second-largest drugmaker, said Wednesday that its shareholders will be able to trade their Pfizer holdings for Zoetis shares at a discount expected to be about 7 percent. The discount level will depend on the average price of both stocks in the three days leading up to the offer's expiration, after the stock market closes on June 19.

For the past two years, Pfizer has been divesting assets outside its core business of producing medicines for people, selling both its capsule-making operation and its nutrition business for a total of nearly $14 billion. CEO Ian Read has been trying to streamline the company to reduce costs and to focus research on disorders with limited treatments or in areas where New York-based Pfizer has expertise.

Both strategies are needed because Pfizer's revenue has dropped by several billion dollars a year as prescription drug sales have been hurt by worsening generic competition, particularly inexpensive copycat versions of its cholesterol blockbuster Lipitor, which lost U.S. patent protection on Nov. 30, 2011. In addition, Pfizer has been increasing its dividend and aggressively buying back its stock, moves that have helped to boost its share price from about $17 in late 2011 to more than $29.

The Zoetis exchange offer would reduce both the number of Pfizer shares on the market and Pfizer's Zoetis holding. That currently totals just under 401 million shares, or 80.2 percent of the outstanding stock of Zoetis, the world's largest maker of medicines for pets and farm animals.

Zoetis — derived from the word zoetic, which means "pertaining to life" — is based in Madison, N.J. It has annual sales of about $4.2 billion, from products including LymeVax, the first Lyme disease vaccine for dogs in the U.S.; Revolution, for protecting dogs and cats from fleas, heartworms and other parasites, and Convenia, a one-shot treatment for dogs with common bacterial skin infections. The company invests $400 million a year in research and development of new medicines and vaccines.

Pfizer spun off Zoetis, and the company held a successful initial public offering of its stock, back in February. The IPO raised $2.2 billion, making it the largest by a U.S. company since Facebook Inc. raised $16 billion a year ago.

Pfizer sold 86.1 million shares for $26 apiece, $1 above the top end of the $22 to $25 range it had estimated for Zoetis. The stock then surged in its Feb. 1 trading debut to close at $31.01.

Since that initial trading day, the stock price has climbed nearly 7 percent to close at $33.04 on Tuesday. Meanwhile, the Standard & Poor's 500 index has advanced more than 10 percent over the same period.

In afternoon trading, Zoetis shares fell 44 cents, or 1.3 percent, to $32.60 while Pfizer shares climbed 79 cents, or 2.7 percent, to $29.57, as the broader trading indexes rose slightly.

Pfizer said several conditions must be met for the completion of the exchange offer, including having at least 160.4 million shares of Zoetis common stock distributed in exchange for Pfizer shares. If the exchange offer doesn't result in Pfizer distributing all of its 401 million shares of Zoetis common stock, Pfizer said it could later dispose of its remaining interest in Zoetis by making an additional exchange offer or giving all Pfizer shareholders a special dividend.

Pfizer said the final ratio of Zoetis shares received for each Pfizer share will be announced after the stock market closes on June 19.


Business Writer Tom Murphy in Indianapolis contributed to this story.


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