Pfizer finally decides not to split up company

After years of discussing a possible splitting up of its divisions, Pfizer’s board has announced it will remain a single company.

Pfizer’s chief executive Ian Read first floated the idea of spinning out the company’s R&D-based, patent protected medicines from its off-patent portfolio four years ago, but now says more value can be generated by them remaining together.

Always keen to maximise shareholder value, Read had indicated that there might be ‘trapped value’ which could be freed by separating the businesses out. This would go one step further than the 2013 spin off of its animal health division, which became Zoetis and generated $2.2 billion via an IPO.

Much has happened since then – the acquisition of biosimilars specialist Hospira in 2015, and most notably, last year’s failed $160 billion tax-inversion merger with Allergan.

Then last month Pfizer pounced for cancer drugs specialist Medivation, paying $14 billion to deny other interested parties such as Sanofi and Gilead.

Now Pfizer says the financial benefits of splitting the businesses have evaporated, and will forge ahead as one company, albeit with separate management structures.  The two parts of the business will continue to be known as Pfizer Innovative Health and Pfizer Essential Health.

Ian Read commented: “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.

He added that the company would continue to report the financial information “necessary to preserve our option to split” the businesses, should the environment change in future.

Shares fell 1.1% on the news, but Pfizer’s overall stock has risen by more than 50% since March 2012, when it first indicated it might split.  This is significantly below the 96% increase in the Standards and Poor Health Care Sector Index over the same period.

Pfizer says the decision won’t affect its 2016 financial guidance. It says its Innovative Health division is thriving, and says its Essential Health group will return to ‘sustainable growth’ over the next few years, thanks to improving sterile product and biosimilar revenues.

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