Please ensure Javascript is enabled for purposes of website accessibility

Half a Breakup Is Better Than No Breakup at All

By Brian Orelli, PhD - Updated Apr 6, 2017 at 8:43PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Pfizer keeps two divisions and puts two on the chopping block.

Pfizer (NYSE: PFE) announced yesterday that it plans to sell or spin off its animal-health and nutrition businesses but keep its consumer health-care and established products division.

It's better than nothing, I suppose.

The animal-health business will almost certainly be sold. It's the type of business where having more products can increase net margins, and the current players have shown an appetite for acquitting more products. Eli Lilly (NYSE: LLY) recently purchased Johnson & Johnson's (NYSE: JNJ) European-based animal-health business. And Sanofi (NYSE: SNY) and Merck (NYSE: MRK) tried unsuccessfully to bring their divisions together in a joint venture.

The nutrition business looks like a good spinout candidate, akin to Bristol-Myers Squibb's (NYSE: BMY) spinout of Mead Johnson (NYSE: MJN). Investors who decided to swap their Bristol shares for Mead Johnson ones have made out pretty well so far.

Holding on to the consumer-health business seems pretty ironic, since Pfizer sold its consumer-health business to Johnson & Johnson five years ago. Now it's interested in keeping the group it got in the Wyeth acquisition? Advil and ChapStick trump Listerine and Sudafed, apparently.

As much as I'm not a fan of dabbling in low-margin generics, Pfizer's established products business serves its purpose. The division allows Pfizer to squeeze out a few extra dollars from products that have generic competition and has in-licensed a few old-fogy drugs as well. The established products business is probably more valuable to Pfizer than the cash it could get from selling the business.

As Pfizer moves on with the breakup, investors should keep an eye on what the company does with the proceeds. The breakup -- whatever size it is -- will benefit investors only if management can use the cash to develop new, innovative drugs.

Keep track of all our Foolish analysis on Pfizer by adding it to the Fool's free My Watchlist service.

Fool contributor Brian Orelli holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Pfizer and Johnson & Johnson and creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Eli Lilly and Company Stock Quote
Eli Lilly and Company
$303.23 (0.24%) $0.73
Sanofi Stock Quote
$48.73 (-0.71%) $0.35
Pfizer Inc. Stock Quote
Pfizer Inc.
$49.82 (0.51%) $0.25
Bristol Myers Squibb Company Stock Quote
Bristol Myers Squibb Company
$75.19 (1.89%) $1.40
Merck & Co., Inc. Stock Quote
Merck & Co., Inc.
$90.06 (1.77%) $1.57
Johnson & Johnson Stock Quote
Johnson & Johnson
$170.32 (0.07%) $0.12
Mead Johnson Nutrition Company Stock Quote
Mead Johnson Nutrition Company

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/09/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.