Bloomberg News

Pfizer’s Zoetis Surges in Trading After $2.24 Billion IPO

February 01, 2013

Pfizer’s Zoetis Raises $2.24 Billion Pricing IPO Above Range

Pfizer World Headquarters building in New York City. Zoetis, based in Madison, N.J., traces its roots back to 1952 as a Pfizer unit and has made at least 10 acquisitions to become the largest animal-health business. Photographer: Dario Cantatore/Getty Images

Zoetis Inc., the animal-health company owned by Pfizer Inc. (PFE:US), surged 19 percent in its debut after raising $2.24 billion in an initial public offering, pricing the shares above the proposed range.

The shares climbed to $31.01 at 4 p.m. New York time. Zoetis yesterday sold 86.1 million shares at $26 each, after offering them for $22 to $25.

“The stock was a no-brainer at the low $20s. In the mid- $20s, where they ended up IPOing, it was a good value,” said Mark Schoenebaum, an analyst with ISI Group Inc. who has a buy rating on the shares. If the price reaches the mid-$30s, “to get to upside value you need to assume they execute better than we have modeled,” he said in a video sent to clients.

The IPO has forced chief executive officers of other drugmakers to answer questions about divesting their animal health operations. The CEOs of Merck & Co. (MRK:US) and Eli Lilly & Co. (LLY:US) talked about their animal units on recent earnings calls and said they were happy keeping the businesses.

Pfizer offered about 17 percent of Zoetis in the IPO, the biggest in the U.S. since Facebook Inc.’s last year. The IPO price valued Zoetis at $13 billion, making it the largest public company of its kind and one of the few focused solely on medicines for animals. Pfizer could exchange the rest of its holdings in six to nine months, Schoenebaum said.

Pure Business

Zoetis is the first pure-play animal health company that’s been made available to investors, said Judson Clark, an analyst with Edward Jones & Co. “There was some question about how investors would view it -- early signs are that it’s favorable,” he said.

The Madison, New Jersey-based company’s shares are listed on the New York Stock Exchange under the symbol ZTS. The IPO was led by JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley.

Zoetis traces its roots to 1952 as a Pfizer unit and has made at least 10 acquisitions to become the largest animal- health business, with $4.3 billion sales in 2012 -- about 20 percent of the $22 billion market. The company is benefiting as people consume more protein, a trend likely to increase as wealth grows in emerging countries such as Brazil, China and India, said Marshall Gordon, of New York-based money manager ClearBridge Investments LLC.

It competes mainly with non-listed units of Merck and Lilly and companies such as Sanofi, according to Schoenebaum.

Merck’s View

Merck’s chief executive officer said he has no plans to break off the animal health unit.

“We are committed to the business,” Merck CEO Ken Frazier said today in a telephone interview. “We think it is a good business. It dovetails nicely with our human health business.”

While Zoetis’s 17 percent sales growth in 2011 outpaced all but Lilly’s animal unit, data compiled by Bloomberg show, Pfizer is parting with the company as part of CEO Ian Read’s strategy to concentrate on the drug business after losing patent protection for cholesterol pill Lipitor, the world’s best- selling medicine.

Pfizer sold its infant-nutrition business for $11.9 billion to Nestle SA (NESN) last year. The drugmaker will likely use proceeds from divestitures for share buybacks, Read has said.

To contact the reporters on this story: Lee Spears in New York at lspears3@bloomberg.net; David Welch in New York at dwelch12@bloomberg.net

To contact the editors responsible for this story: Jeffrey McCracken at jmccracken3@bloomberg.net; Reg Gale at rgale5@bloomberg.net


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Companies Mentioned

  • PFE
    (Pfizer Inc)
    • $31.76 USD
    • 0.64
    • 2.01%
  • MRK
    (Merck & Co Inc)
    • $58.33 USD
    • 0.70
    • 1.2%
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