Pfizer’s Zoetis spinoff: Oversubscribed, shares hard to get

Pfizer is about to turn Zoetis either into January's last IPO or February's first.


WASHINGTON, January 31, 2013 — As the Maven has mentioned several times this month, January has been an uncommonly good time to add select IPOs and secondary offerings to one’s portfolio. Case in point: a sort-of IPO, namely Pfizer’s (symbol: PFE) animal drug compan spinoff, Zoetis (proposed symbol: ZTS).

Zoetis? Never heard of it? Well, neither had we until about a year ago. The entity soon to be known as Zoetis was then just another part of Pfizer, the pharmaceutical mega-giant, one of America’s biggest companies. After Pfizer acquired another pharma giant, Wyeth, a few trading seasons back, the DJIA component was still regarded on Wall Street as another Very Big Company that had lost its edge.

Paying, like most wizened pharmaceutical giants (as opposed to biotechs), an outsized dividend, Pfizer (PFE)—along with fellow travelers such as Merck (MRK), Bristol Myers-Squibb (BMY), Eli Lilly (LLY), and so forth—was long viewed as a no-growth giant whose lack of a promising R&D pipeline of new drugs, assuring that its stock was generally consigned to retirement and trust portfolios in search of income rather than growth.

The Wyeth acquisition, which included Wyeth’s more-impressive portfolio of promising, late-stage new drugs, started to change investor minds about Pfizer, and its fat dividend began to attract even more attention as yield in a low-profit market environment became more important.

Further, Pfizer continued and continues to look for new acquisitions while also trying to rationalize its existing line of businesses and products. Which starts to get us back to Zoetis. Unbeknownst to most consumers, Pfizer has always held an impressive array of animal and pet care pharmaceuticals in its portfolio. But, over the past couple of years, the company’s more aggressive management team determined that this line of business was no longer core to where the company wanted to be.

Hence, they made a decision to corral this business into a specific entity, which they would then gradually separate from the main company by way of a spinoff. After handling the legal, corporate, and accounting aspects of this upcoming transaction, Pfizer named this unit “Zoetis,” a name that taxonomically hints at the unit’s core animal business.

Pfizer is about to turn Zoetis either into January’s last IPO or February’s first. The IPO shares will be priced sometime this evening after U.S. markets close. Shares will be allocated tonight through tomorrow morning. And the stock will open for trading on the NYSE under its new ticker symbol, ZTS, tomorrow morning, likely around 10 or 10:30 EST or as soon as the opening trade is put together–typical for IPOs.

Except, again, the soon-to-be-born-again Zoetis is a longstanding, real, profitable business, atypical of your average IPO. It’s simply a part of Pfizer today that the mother ship will begin carving out tomorrow. So it’s not the typical crapshoot IPO. It’s a known quantity.

Sort of.

There’s that matter of valuation. Currently, the offering is expected to price tonight at between $22-25 per share. At the midpoint of this range, $23.50, Zoetis would be valued at roughly $12B. Some analysts think that’s a good deal. Others think it’s overpriced. What happens to the stock tomorrow when it opens will give us a clue, along with its final pricing tonight.

As for this latter element, word is that the issue is “oversubscribed,” which means that more people want stock than there are shares available. The Maven began to personally suspect this a couple of days ago when the IPO didn’t show up on the Charles Schwab radar. I.e., Schwab (the Maven’s broker) isn’t in on the deal, which means that the lead underwriters, Morgan Stanley (MS) and JP Morgan (JPM) and the remaining bigwig underwriters are sitting on most of the stock themselves and saving it for their clients. Irritating, but perfectly legal.

If the stock is ultimately priced above its alleged range tonight (likely), that means it will likely pop, perhaps a lot, when it opens tomorrow. Yes, Facebook (FB) was notoriously priced up as well, but that was a scam in this writer’s opinion and we all know about that now. Zoetis is more boring and has zero high-tech growth appeal, so only real investment aficionados will be attracted to this issue, although they appear to be legion.

If you work with a full-service house, you might check out the Zoetis prospectus online and/or call your broker if you’re interested. We’re not recommending the IPO one way or the other but that said, we’d likely take a nibble if we could. But be forewarned: if you can’t get shares, don’t chase the stock after it opens. It may take awhile, but the stock will eventually settle into a comfortable niche 30-90 days after the open. If it’s still interesting, maybe we’ll take a look at it then.

On other fronts, at roughly 1:30 p.m. this afternoon, the market looks worn out, a sense likely not helped by lousy jobless figures and the fact that the now international beer conglomerate that includes Anheuser-Busch (InBev) has been told by the U.S. Department of Justice that the Feds don’t like their proposed takeover of the portion of Mexican brewer Groupo Modelo that they don’t yet own. Anti-trust or something.

Whether you agree or not, the market hates to hear “no” on a deal, and that hasn’t helped this afternoon’s tone either. Maybe Anheuser-Busch InBev didn’t pony up enough support for certain people running up to last fall’s elections, eh?

Stay thirsty, my friends.

Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.

Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.

References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.

Follow Terry on Twitter @terryp17


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