Pfizer Inc.'s $17 billion agreement to buy intravenous-drug maker Hospira Inc. sends a clear signal that Chief Executive Officer Ian Read is doing deals with an eye toward splitting the company.
The acquisition of Hospira, which makes generic injectable drugs and devices to deliver them, will bolster Pfizer's established drugs business, which includes off-patent medicine with slow growth and strong cash flow. Once that business has been built up into a stand-alone company, Read could spin it off, separating it from the growth-focused unit that contains Pfizer's brand-name drugs, said two people familiar with the matter.
In addition to preparing for a possible split, Pfizer's deal Thursday indicates that the company is less focused on a transaction like last year's failed bid to acquire AstraZeneca Plc to relocate its corporate address overseas and get a lower tax rate, said one of the people, who asked not to be identified because the strategy is private.
“We think this deal signals a firm intent to separate Global Established Products in 2017 and leaves more firepower for further deals to augment Global Innovative Products,” Jefferies analyst Jeffrey Holford said in a note to clients.
Pfizer shares rose 2.9 percent to close at $32.99 in New York, the biggest one-day gain since April 28. Hospira's shares rose 35 percent to $87.64.
In May, Pfizer abandoned its bid to acquire AstraZeneca for $117 billion. At the time, Pfizer was wary of paying a big premium when the deal's tax benefits were being scrutinized by the Treasury Department, one of the people said.
Pfizer made the move in part because so-called tax inversion deals were under political pressure, one of the people said. Five months later, AbbVie Inc. would pay a $1.4 billion termination fee to get out of a so-called tax inversion deal with Shire Plc once the Obama administration cut the tax advantages of relocating overseas. Pfizer exited the AstraZeneca bid without paying such a fee.
While Pfizer still has the cash to go after a large foreign-domiciled company and could do so, its focus is more on building up its two distinct business units for a possible split. Pfizer has spent $400 million on accounting work to separate earnings from the established and brand-name businesses.
“I think the market is relieved that they're not trying to press forward with some kind of inversion,” said Diane Jaffee, TCW Group Inc.'s group managing director for U.S. equities, who oversees about $8 billion including Pfizer shares. “This allows them to continue to strongly consider breaking up the company into two or three different pieces.”
