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Pfizer Inc. (PFE), Merck & Co., Inc. (MRK): Will This Successful Spin-off Mean More Spin-offs in the Industry?

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After a wildly successful IPO that raised over $2 billion, and valued the newly-created company at more than $12 billion, pharmaceutical giant Pfizer Inc. (NYSE:PFE) retains about 80% of the equity in its former animal drugs division Zoetis Inc (NYSE:ZTS).

Pfizer Inc. (NYSE:PFE)

Although Pfizer has not made any formal announcements of its plans for the remaining stake, it is widely expected to unwind a significant portion of its investment during the coming months. These moves could come in the form of an exchange offer with Pfizer’s current shareholders, a secondary IPO, or targeted sales of stock to institutional investors. The company is expected to offer more clarity on its plans by the end of 2013.

About Pfizer Inc. (NYSE:PFE) and Zoetis Inc (NYSE:ZTS)

New York-based Pfizer Inc. (NYSE:PFE) is a multinational drug company that develops and distributes dozens of proprietary formulas on a global basis. Its portfolio includes many “blockbuster” drugs, including Celebrex, Lipitor, Viagra, and Chantix.

Although the company has faced persistent worries about the impending expiration of many of its most valuable patents, its pipeline appears to be well-stocked, and should provide the company with product support during the coming years. Pfizer Inc. (NYSE:PFE) also develops and markets specialized, small-market products, that treat a variety of rare or congenital disorders and afflictions. These include Prevenar, ReFacto and Zynox. The company employs tens of thousands of employees and earned $9.5 billion on gross 2012 revenue of $59 billion.

Madison, New Jersey-based Zoetis was the animal-drug division of Pfizer Inc. (NYSE:PFE). The company focuses exclusively on developing and marketing vaccines and medications for livestock and household pets, including horses, cattle, dogs, and cats. The company’s signature products include a cattle vaccine known as BoviShield, an anti-parasite drug known as Cydectin, and a anti-infection drugs like Clavamox and Convenia.

The company works with veterinarians, livestock specialists, farmers, and pet owners in North America, Asia, Europe, and South America. The company earned about $455 million in 2012 on revenue of $4.3 billion.

How the deal was structured

Pfizer’s initial spin-off of Zoetis involved the offering of about 86 million shares at $26 apiece. This generated over $2 billion in value for the company, and clearly whetted its appetite for further moves. After the offering, Zoetis’ stock surged more than 30% before closing at a premium of 19% to its offering price.

Pfizer Inc. (NYSE:PFE) continued to hold nearly 415 million non-voting Class B Zoetis shares. Since these can be converted into Class A common shares on a one-to-one basis without prior notice, this stash places Pfizer in an enviable position. Its shareholders could benefit handsomely as a result.

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