Pfizer: Diversified Dreams, Dubious Decisions

In a recent interview, Pfizer's (NYSE: PFE  ) CEO Jeffrey Kindler said he wants to make his company more like Johnson & Johnson (NYSE: JNJ  ) and Abbott Labs (NYSE: ABT  ) , which aren't dependent on one product for success.

Great idea, Jeff! Becoming less dependent on any one product is a wonderful notion -- especially for a company that's about to see $12.4 billion worth of Lipitor sales vanish in a few years. Even in areas beyond health care, conglomerates like General Electric (NYSE: GE  ) and Tyco International (NYSE: TYC  ) have benefited from diversity.

But Kindler seems to have missed the point about how to become diversified. You don't do it with one huge, overpriced acquisition, as Pfizer tried to do by buying Wyeth (NYSE: WYE  ) . Such large-scale integration could easily become a nightmare. Instead, you do it through small, easily digested purchases. Let's look at some recent moves from both J&J and Abbott:

Acquirer	Target	Price
Johnson & Johnson	Omrix Biopharmaceuticals	$433 million
	Mentor	$1.2 billion
	Human Performance Institute	Not disclosed
Abbott	Advanced Medical Optics	$2.9 billion
	Ibis Biosciences	$215 million
	Nova Science	$13 million

Source: Capital IQ, a division of Standard & Poor's.

See anything approaching Wyeth's $68 billion price tag? Not even close. The largest acquisition listed in Capital IQ's database for Johnson & Johnson is, ironically, its $16.6 billion acquisition of Pfizer's consumer health-care division in 2006. For Abbott, it was the $7 billion acquisition of BASF's pharmaceutical business back in 2001.

Pfizer hasn't done a very good job of integrating large acquisitions in the past, and investors should be especially wary of a repeat performance. Instead, investors would probably be better off looking at Sanofi-Aventis or GlaxoSmithKline (NYSE: GSK  ) . Both of these businesses seem to understand that pharmaceutical companies need to be value investors, too.

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