Pfizer's Divestiture Plan No Big Deal

We estimate the value of Pfizer’s consumer division at close to $17 billion based on recent comparable sales, which suggests a divestiture would create a minor level of valuation (low-single-digit percentage gain) for shareholders. Over the past three years, the price/sales multiples for major consumer healthcare divisions have ranged from 4 to 6 times, with Bayer’s purchase of Merck’s consumer healthcare group coming in at the high end of this range, while Sanofi’s asset swap for Boehringer Ingelheim’s consumer group was at the lower end of the range. If Pfizer were to pursue a sale of the consumer group, the tax implications would likely erase any valuation creation from the deal. However, a spin-off or split-off would likely create a minor level of value-creation for shareholders.

With no major Rx (prescription) to OTC (over-the-counter) switches likely over the near term, we view the synergy of holding the consumer health business with Pfizer’s prescription business as less important. While cholesterol lowering drug Lipitor and erectile dysfunction drug Viagra hold potential for a Rx-to-OTC switch, we are skeptical the major regulatory agencies will approve the label change. Further, with Pfizer focusing more on critical-care areas such as oncology in its prescription business, future Rx-to-OTC switches seem less likely.

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