This coming Thursday, Pfizer Inc (NYSE:PFE) is separating its animal-health unit, which sells medicines, vaccines and other products for livestock and pets, into a standalone company, named Zoetis Inc. under the ticker (NYSE:ZTS). Zoetis Inc plans to sell off a 20% stake to the public in its IPO, which is 86.1 million shares currently valued between $22 and $25 each that could value the animal health business at as much as $12.5 billion. At the top-end of the expected range, the offering would raise about $2.2 billion.
Zoetis had filed with regulators in August a placeholder amount of up to $100 million, as the largest U.S. drugmaker looked to spin off the unit and narrow its focus on its core prescription drug business. The new company will use a dual-class share structure, with Pfizer offering all the Class A common shares in the IPO. Pfizer will hold 413.9 million Class B Zoetis shares following the offering, each of which would be convertible to one Class A share at any time, according to an amended regulatory filing. Both classes of shares will have identical rights and voting power on all matters submitted to stockholder vote, other than the election of directors.
The Zoetis IPO is scheduled to price on Jan. 31 and shares are expected to begin trading New York Stock Exchange on Feb. 1. JP Morgan (NYSE:JPM), Bank of America (NYSE:BAC) and Morgan Stanley (NYSE:MS) are the lead underwriters to the offering.
Zoetis' Fair Valuation
"...we will offer some brief comments regarding our preparation and target timeline for the potential IPO of the minority stake in our Animal Health business, Zoetis, and as I'm sure you'll understand we're not going to be able to respond to questions on that subject in light of the quiet period imposed by securities laws."
Due to these restrictions, Zoetis' proper valuation is not clear. In order to view Zoetis' current value as a piece of Pfizer I went through some key metrics. All data is as of April 1st 2012, as published on the SEC database on August 13th, 2012.
Pfizer earned a revenue of $15.41 billion while Zoetis holds a value of $1.05 billion. This is a 6.8% valuation, which given Pfizer's current Market cap of $199 billion, we are looking at a $13.5 billion dollar valuation.
Further, the unit reported revenue of $3.16 billion, or about 7 percent of Pfizer's overall revenue, for the nine months ended September 30, 2012, giving it roughly the same $13.5 billion valuation.
Pfizer earned an income of $1.79 billion while Zoetis holds a value of $111 million. This is a 6.2% valuation, which given Pfizer's current Market cap of $199 billion, we are looking at a $12.3 billion dollar valuation.
Growth (Net Income)
Not very comparable. While Pfizer averaged an 8% growth year over year for the past three years, Zoetis has averaged a whopping 125% growth year over year.
Wide Range of Price Tags on Zoetis
So far, Reuters as I have sourced above recorded the shares being valued between $22 to $25, giving Zoetis a $12.5 billion dollar value. On the other hand, last month the Wall Street Journal published an article stating the value of Zoetis at a grand $20 billion dollar value. This is a huge discrepancy between the two news outlets.
Given a wide range of valuations for the soon to be public company, I feel the proper valuation is very roughly 14 or 15 billion dollars. Further, there is security as buyers such as Novartis (NYSE:NVS) and Bayer (OTCPK:BAYN) have previously expressed interest in the unit, but the Wall Street Journal reported that offers have cooled as the price tag approached $20 billion.