Any Pfizer Inc. (NYSE:PFE) shareholders that were hoping for a bidding war for its consumer health division have to be at least a bit disappointed. How so? By the time bids were due last week, only two parties were still interested. To that end, given the names that walked away from the process without even bothering to make a bid, owners of Pfizer stock may now be wondering if the pharmaceutical giant will be able to sell that unit at all.
They may be right to worry, too, in light of some of the unofficial whispers about why so few companies aren’t jumping at the chance to own some rather recognizable brands.
Not a Good Sign
It wasn’t exactly news to shareholders when Pfizer’s chiefs officially started talking about the sale of its consumer health arm, which encompasses (among others) brands like Advil, Chapstick and Centrum in October of last year. Some Pfizer stock holders had been cheering the idea as far back as 2016, knowing this stable-but-low-growth business was getting in the way of bigger and better things from the pharmaceutical side of its business.
What’s been surprising in the meantime is the lack of interest from some organizations that could presumably do more with OTC painkiller Advil and something as benign as lip balm. Per Bloomberg’s reporting, only GlaxoSmithKline plc (ADR) (NYSE:GSK) and Reckitt Benckiser Group Plc-ADR (OTCMKTS:RBGLY) had submitted offers by the February 1st deadline.
It’s a far cry from the numbers in the group that were initially interested. Food giant Nestle SA (ADR) (OTCMKTS:NSRGY) and Johnson & Johnson (NYSE:JNJ) were both reportedly considering Pfizer’s consumer-oriented unit, which was projected to fetch between $15 billion and $20 billion. The buzz is, though, that the drop-outs thus far are concerned about stagnant sales.
Let that sink in for a moment. Johnson & Johnson, which makes Johnson’s baby shampoo, Band-Aid brand bandages, Tylenol and Listerine — and arguably know more about the consumer health market than any other company on the planet — doesn’t see enough growth potential in Pfizer’s consumer products to even bother making a lowball offer for the business.
Nestle is admittedly less in touch with the consumer health consumer than J&J is, though not leaps and bounds so. Nutrition products Boost and Peptamen are both part of the Nestle lineup, and names like Centrum and Advil could help the company penetrate new store shelves. Nestle just didn’t think it was worth a shot either.
Muted Interest Likely
With that as the backdrop, the remaining bidders, Reckitt Benckiser and GlaxoSmithKline, may only be marginally interested.
Glaxo’s existing consumer business isn’t irrelevant. This arm accounts for about a fourth of the company’s total revenue, thanks to sales of brands like Excedrin, Sensodyne and Flonase. Adding Advil and Band-Aid to the mix could give it even more control of the OTC market. It would be difficult for the company to take on those new products, however, without at least partially cannibalizing itself in addition to running the risk of trying to handle too many different brands.
Then there’s the not-so-small matter of relatively new CEO Emma Walmsley saying that, like Pfizer, she wants to focus on the higher-growth pharmaceuticals market. The purchase of Pfizer’s consumer products division would be a step in the wrong direction.
Looking Ahead for Pfizer Stock
It wasn’t the outcome expected just a few weeks ago, but owners of Pfizer stock may want to prepare themselves for the possibility that this deal doesn’t get done.
It’s not the end of the world. It would be better to hold onto a cash cow, even if it’s not growing, than to give it away to a competitor for a song. As CEO Ian Read explained in October, his goal is to “create maximum value.” That may only be accomplished if Read walks away from the table altogether and decides to somehow make it work.
Either way, the lack of interest we’ve seen thus far in Pfizer’s consumer health arm bodes poorly for Pfizer stock.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.