Zoetis Inc (NYSE:ZTS) finally free of the Pfizer shackles
Pfizer Inc. (NYSE:PFE) announced the final-results of the offer to its shareholders to exchange either all, none or some of their shares of the company’s common stock of shares of Zoetis common stock that is owned by Pfizer. This exchange offer expired on 21 June 21 2013. Under the exchange offer terms, 0.9898 shares of the Zoetis common stock were exchanged for every Pfizer common stock share that was accepted in the exchange offer. The company accepted 405,117,195 common stock shares in exchange for the 400,985,000 Zoetis common stock shares that were owned by Pfizer. Since the exchange-offer was oversubscribed, Pfizer accepted the tendered shares its common stock on a pro-rata basis in proportion to the shares that had been totally tendered.
What is a spin-off?
In a spin-off, the parent company like Pfizer distributes 100 percent of its ownership-interests in the subsidiary operation in the form of a dividend to its current shareholders. Post the spin-off, there will be two separate, publicly held entities that have the same shareholder base. This is in contrast to an IPO. In an Initial Public offering, the parent company actually sells, in contrast to giving away, some or all its ownership interests in a particular division.
The spin-off process is fundamentally not an efficient method of distributing its shares to those who may not really want it. Largely, investors are putting their money in the parent company’s business. Once the shares have been distributed, they are generally sold without any regard to fundamental value or price. This initially depresses the stock. Apart from this, institutions ideally spin-off stocks because they do not offer dividend, are too small etc. Index funds are compelled to sell-off the spin in an indiscriminate manner if that company is not included in any particular index. This kind of selling are ideal selling opportunities for a smart investor to locate good businesses at an even better price. Generally, post the spin, once the subsidiary is freed from the large corporate parent, its entrepreneurial forces get unleashed. The combination of responsibility, accountability as well as more direct incentives or stock options generally show up in the operating performance soon after a spin. Zoetis Inc (NYSE:ZTS) now has the freedom to mold itself the way it chooses to.