Zoetis Inc (NYSE:ZTS) waving last goodbye to Pfizer Inc. (NYSE:PFE)

Posted by Lynn Eisler June 18, 2013 0 Comment 3382 views

Pfizer Inc sprang a surprise on the investment community when it recently announced that it will be offloading its remaining stake in Zoetis Inc (NYSE:ZTS), the veterinary pharmaceutical firm. At minimum, this transaction will be designed to lessen PFE’s take in ZTS to non-majority and non-controlling levels. Nevertheless the ultimate aim seems to be a total liquidation of PFE’s interest in its former subsidiary. Though several industry watchers had projected this turn of events, the efficacy and speed at which Zoetis is being distanced from the pharma giant has surprised many.

What could happen post the spin-off?

A major part of Zoetis holdings would be spun-off by Pfizer via this transaction. However, there is a definite possibility that this huge offering will eventually be under-subscribed. With this in mind, Pfizer Inc. (NYSE:PFE) has setup numerous contingency plans to offload the balance of its holdings in a timely manner. If this current transaction is not the wild success that company hopes it will be, PFE has indicated that in 2014, it might put forth another secondary offering or a special dividend of ZTE stock will be offered to all its stakeholders of record. If this deal gets fully subscribed, around 400M Zoetis Inc (NYSE:ZTS) shares will be exchanged.

What is a spin-off?

A spin-off is an entirely new business entity that is formed to commercialize the inventions that have been generated from any research work from the parent institution. In some cases, formation of a spin-off company may be an alternative to licensing an IP to a business that is already established. This is not always either meaningful or possible. In some cases, companies change their operational strategies and spin-off subsidiaries that they have a stake in. This may be an effort to enhance their profitability or to provide the spun-off company the independence it needs. A spin-off always adds to the coffers of the parent company.

Zoetis Inc (NYSE:ZTS), may also find the spin-off to be the appropriate commercialization route if it needs to develop its technology even further to extract some commercial value from it.

About Lynn Eisler

Lynn Eisler is a national news reporter focusing on economic issues, data analysis and the financial health of state and local governments. Lynn has been honored with the H.L. Mencken Award for Investigative Reporting, the Champion of Justice Award for reporting on the drug war, and the John Hancock Award for business reporting. Lynn was also a Knight Medical School Fellow at the University of Michigan.

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