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Pfizer Won’t Break Up Animal Unit as Lilly Shows Interest in Some Products

QBy Tom Randall and Bob Langreth - Jul 21, 2011 12:24 PM CT .

Pfizer Inc. (PFE), the world’s biggest drugmaker, said it has no plans to break up the company’s animal health unit after Eli Lilly & Co. (LLY) expressed interest in buying some of its products.

Lilly, which had $1.39 billion in sales from animal-health products last year, is monitoring Pfizer’s plans to divest its unit and will pursue assets deemed of interest, Chief Financial Officer Derica Rice said today in a conference call. Pfizer wants a sale or spinoff of the unit and doesn’t foresee breaking it up, said Joan Campion, a company spokeswoman.

Pfizer Chief Executive Officer Ian Read said on July 7 he is divesting the company’s animal health and nutrition units to buy back shares and focus on developing new drugs. The units may fetch $22 billion, according to Seamus Fernandez, an analyst at Leerink Swann & Co. Pfizer’s animal health unit had sales last year of $3.48 billion.

“While we are evaluating a variety of options including a sale, spinoff or other transaction, we believe we will favor one overall option rather than dividing assets and business operations,” Campion said today in an e-mail.

Pfizer’s review of its options for the unit will take 12 to 24 months, Campion said. The company doesn’t plan further announcements about the unit until 2012, she said.

Pfizer shares rose 27 cents, or 1.4 percent, to $20.17 at 1:22 p.m. in New York Stock Exchange composite trading. Lilly rose $1.23, or 3.2 percent, to $39.40, for the biggest intraday gain since May 3.

Evolving Situation
“We will watch how that situation evolves, and if there are some assets that become available that we are interested in, yes, we will pursue them,” Lilly’s Rice said in a conference call with analysts. “It is very early to speculate” what type of transaction Pfizer is seeking, he said.

Lilly isn’t likely to buy the unit outright, Fernandez said in an e-mail. In order to maintain its quarterly dividend of 49 cents a share, which Rice has said Lilly will do, the company would have to issue more stock and risk diluting earnings or use so much cash that it would hurt the company’s credit ratings, Fernandez said. The deal is also unlikely to be approved by antitrust regulators, he said.

“I simply don’t think they are interested, and a $12 billion-plus deal would be a pretty big deal,” Fernandez wrote. If another buyer emerges and faces regulatory hurdles, Lilly might be able to purchase some assets from the acquiring company, he said.

Lilly is interested in expanding its Elanco animal heath unit’s offerings in vaccines and pet products, as well as boosting its presence in Europe, Jeff Simmons, president of the division, said in a June 29 telephone interview. Elanco’s biggest product line is feed additives for cattle and poultry.

“We are going to be opportunistic in animal health,” Simmons said. “We are looking for additional assets. We are not interested in acquiring for the sake of acquiring; it has got to have a strategic element.”
To contact the reporters on this story: Tom Randall in New York at [e-mail]; Robert Langreth in New York at [e-mail]