NEW YORK—Back in October of last year, Pfizer Inc. announced that one of the largest over-the-counter (OTC) healthcare products businesses—its own—was potentially on the auction block. Selling the consumer products part of their business isn’t the only option on the table, of course. As the company noted at the time, “a range of options will be considered, including a full or partial separation of the Consumer Healthcare business from Pfizer through a spin-off, sale or other transaction, and Pfizer may ultimately determine to retain the business.”
As Pfizer Chairman and CEO Ian Read put it: “Pfizer Consumer Healthcare is a leading player in the largest OTC categories, with iconic brands, robust retail partnerships, global reach and strong fundamentals. Although there is a strong connection between Consumer Healthcare and elements of our core biopharmaceutical businesses, it is also distinct enough from our core business that there is potential for its value to be more fully realized outside the company. By exploring strategic options, we can evaluate how best to fuel the future success and expansion of Consumer Healthcare while simultaneously unlocking potential value for our shareholders.”
In the end, the primary driver is making shareholders happier by continuing efforts the company has been engaging in to maximize value for investors. The company also notes that its reallocation of resources and capital is also aimed at better serving patients, but keeping so many options open in the strategic review of Consumer Healthcare is something that would only be of interest to investors and other market-watchers.
Still, while the options run the gamut, the idea of selling is obviously one of the more attractive ones for Pfizer, as it would simplify its plans and operations while also putting a large amount of money into its coffers. A deal is estimated to be worth around $20 billion to Pfizer if it can find a buyer.
However, that route has not yet attracted much in the way of potential suitors. Johnson & Johnson dropped out of the running early on—in January, in fact. And roughly a day before GSK decided to bow out on March 23, British consumer goods company Reckitt Benckiser removed itself from the scene.
With regard to the most recent departed suitor, GSK CEO Emma Walmsley said simply of the decision to pass on Pfizer Consumer Healthcare: “While we will continue to review opportunities that may accelerate our strategy, they must meet our criteria for returns and not compromise our priorities for capital allocation.”
That statement, while utterly generic, matches what she said to reporters attending the J.P. Morgan Healthcare conference in January when she told them her company didn’t need Pfizer’s OTC business—which includes such brands as Advil and Thermacare in pain management, Nexium and Preparation H in gastrointestinal, Robitussin and Advil Cold and Sinus in respirtatory and Centrum, Caltrate and Emergen-C in dietary supplmentation—to bolster GSK’s operations. It also matches the direction she’s take in roughly a year so far in the CEO’s chair, which is to focus on GSK’s pharmaceutical business.
As market-watchers at The Motley Fool have noted, GSK’s exit doesn’t leave much in the way of other potential suitors, given that Novartis sold its consumer healthcare operation to GSK a few years ago, Bayer bought U.S.-based Merck & Co. consumer division a few years ago and Germany-based Merck KGaA is trying to sell its own consumer health operation.
Motley Fool contributors note that Nestle, which has been rumored to have an interest in Merck KGaA’s consumer products, could potentially also decide to put in a bid. Bayer has also been mentioned, but it’s already involved with an acquisition of Monsanto, and juggling two giant deals might be a bit much. As far as other prospective buyers, Motley Fool’s Keith Speights wrote: “Procter & Gamble is another prospective acquirer. Pfizer’s products, including Advil, Centrum, Nexium and Robitussin, appear to be solid additions to P&G’s current consumer healthcare lineup, which include Metamucil, Nyquil, Pepto-Bismol and Prilosec.
“One other possibility is Abbott Labs. Abbott’s current primary consumer focus is on nutritional products, and Pfizer’s consumer healthcare products would bring a different flavor to Abbott’s offerings.”
But so far, no one else seems to be nibbling since the three front-runners dropped out. This makes it increasingly likely that Pfizer will spin off the Consumer Healthcare division as an entirely separate business entity, given that if keeping the operation in-house and balancing the OTC and prescription therapeutics businesses was really an attractive option, Pfizer wouldn’t have been looking for all the strategic options it could to divest the business in the first place. Also, as we’ve already seen, Pfizer doesn’t want to do this deal piecemeal, so selling off Consumer Healthcare in pieces seems unlikely—the main reason the Reckitt Benckiser bid fell through was that Reckitt wanted to buy only part of the OTC operation, and Pfizer didn’t want to just sell of part of the business.