NEW YORK — Pfizer Inc. announced that, after evaluation and careful consideration, the company’s Board of Directors and Executive Leadership Team have decided not to split Pfizer Innovative Health and Pfizer Essential Health into two, separate publicly traded companies at this time.
The decision goes against corporate trends to split large companies into two separate ones to maximize shareholder value. Companies that have recently split up or are in the process include: Alcoa, Xerox, News Corporation and Hewlett-Packard.
“With this decision, our two distinct businesses will remain separately managed units within Pfizer, which we believe is currently the best structure to continue to deliver on our commitments to patients, physicians, payers and governments, and to drive value for our shareholders,” stated Ian Read, chairman and chief executive officer. “We believe that by operating two separate and autonomous units within Pfizer we are already accessing many of the potential benefits of a split – sharper focus, increased accountability, and a greater sense of urgency – while also retaining the operational strength, efficiency and financial flexibility of operating as a single company as compared with operating as two, separate publicly traded companies. We will continue to generate the financial information necessary to preserve our option to split our businesses should factors materially change at some point in the future.”
As the company previously indicated, the process for making a decision was guided by criteria that included evaluating the performance of each business within Pfizer, determining if each business could compete as a stand-alone entity, assessing if trapped value existed in a combined entity and if any trapped value could be unlocked efficiently. In addition, the company evaluated whether key strategic and operating imperatives could best be achieved in the current structure versus two, separate publicly traded companies.
Both the Innovative Health and Essential Health businesses have delivered solid year-over-year performance over the course of the past three years, as well as strong performance through the first half of 2016, demonstrating their ability to compete on a standalone basis.
“When we first explored the trapped value question several years ago, market valuations of other companies suggested that our two businesses could potentially be worth more as separate companies than they are together in a single company,” said Frank D’Amelio, executive vice president, Business Operations and Chief Financial Officer. “However, over time, any potential gap between Pfizer’s market valuation and an implied Sum of the Parts (SOTP) market valuation has closed. In our analysis, we concluded that splitting into two companies at this time would not enhance the cashflow generation and competitive positioning of the businesses and the operational disruption, increased costs of a split and inability to realize any incremental tax efficiencies would likely be value destructive.”