Nestle to Acquire Pfizer Unit (KKR) (PFE)

Zacks

Pfizer (PFE), which has been exploring strategic alternatives for its Nutrition business, recently announced that it has entered into an agreement with Nestlé regarding it. Pfizer will divest its Nutrition business to Nestlé for a cash consideration of $11.85 billion.

While the sale of the Nutrition business was expected, the deal value was above expectations. The Nutrition business delivered sales of $2.1 billion in 2011, up 15%. Higher demand for premium products, new product launches and strong performance in China and the Middle East drove sales.

Pfizer had announced its intention to explore strategic alternatives for its Animal Health and Nutrition businesses in July 2011. In August 2011, Pfizer sold its Capsugel unit to Kohlberg Kravis Roberts & Co L.P. (KKR) for $2.375 billion in cash.

Guidance to be Updated in May

The Nutrition business deal is expected to go through in the first half of 2013. Pfizer intends to start treating the Nutrition business as discontinued operations from the second quarter of 2012. With the Nutrition business being treated as discontinued operations, we expect 2012 earnings to be impacted by a few cents.

However, 2013-2014 earnings should be boosted as, once the deal goes through, Pfizer will be utilizing the proceeds for share repurchases, as well as other business development activities.

Pfizer, which is slated to announce first quarter results on May 1, will update its guidance at that time. We also expect an update on the company’s plans for its Animal Health business.

Neutral on Pfizer

We currently have a Neutral recommendation on Pfizer, which carries a Zacks #3 Rank (short-term ‘Hold’ rating). The sale of the Nutrition business should allow the company to focus on its core business areas.

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