Zoetis has further outlined the initial public offering it will use to separate itself from the pharmaceutical giant in a matter of weeks. In papers filed with the Securities and Exchange Commission late Thursday, Zoetis revealed it expects its IPO to price at between $22 and $25 per share and raise roughly $2.2 billion total. The IPO could value Zoetis at as much as $12.5 billion, according to regulatory filings.
The IPO will price on Jan. 31. Zoetis' stock will begin trading on the New York Stock Exchange under the symbol ZTS on Feb. 1, according to regulatory filings.
Juan Ramon Alaix, the current president of Pfizer's animal health unit, will be the CEO of Zoetis when it goes public.
Zoetis will issue both Class A and Class B common stock, with the former class going to the group of firms underwriting the IPO and investors on the open market, and the latter class going exclusively to Pfizer. Zoetis will offer 86.1 million shares of its Class A common stock at the offering. The underwriters, however, will have the option to buy another 12,915,000 Class A shares through a complex transaction with a subset of underwriters holding at least $2.48 billion in Pfizer debt dubbed the "debt-for-equity exchange parties" and identified in the document as J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Inc. and Morgan Stanley & Co. LLC.
Should the underwriters exercise that option in full, Zoetis would have a total of 99,015,000 total Class A shares.
The three debt-for-equity exchange parties would get all of the proceeds raised from the sale of Class A stock in the IPO. They are also the joint book running managers of the offering.
The underwriters aside from J.P. Morgan, Merill Lynch and Morgan Stanley are Barclays Captial Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities LLC, Jefferies & Co., BNP Paribas Securities Corp., HSBC Securities (USA) Inc., Loop Capital Markets LLC, RBC Capital Markets LLC, Williams Capital Group LP, UBS Securities LLC, Lebenthal & Co. LLC, Piper Jaffray & Co. and Samuel A. Ramirez & Co.
Following the offering, Pfizer will own stock representing an 82.8% economic interest in Zoetis and 98% of the combined voting power regarding the election of directors. Those numbers would shift to 80.2% and 97.6%, respectively, if the underwriters exercise their option to buy more shares. Pfizer, however, has said that following the offering it may make a tax-free distribution of all or some of its Zoetis stake.
Pfizer CEO Ian Read has said specifically that Pfizer would likely hive off the animal health business through a combined IPO and share swap rather than sell it. Such a strategy allows Pfizer to avoid a potentially huge tax bill. Pfizer, for example, was hit with a $2.3 billion tax bill when it sold its old consumer healthcare division to Johnson & Johnson Inc. for $16.6 billion in 2006. (Pfizer added its current consumer healthcare division, which sells nonprescription medicines such as Advil and Robitussin, when it bought Wyeth for $68 billion in 2009.)
As it prepares to separate from Pfizer, Zoetis has put both a series of notes and a revolver in place. It has already raised $3.65 billion in senior notes through a private placement that it will complete before the IPO. The private placement consists of a $400 million in 1.150% senior notes due 2016, $750 million in 1.875% senior notes due 2018, $1.35 billion in 3.25% senior notes due 2023 and $1.150 billion in 4.7% senior notes due 2043. Pfizer will get all the cash raised from the note offering.
Zoetis has also raised a five-year, $1 billion senior unsecured revolver from a syndicate of banks.
The IPO is part of Pfizer's massive restructuring, which has been geared toward turning the company into a pure-play drugmaker. Pfizer has already sold two multibillion-dollar businesses -- its capsule-making unit, Capsugel, and more recently, its nutrition unit -- as part of the overhaul. Pfizer has said that it will use the cash generated through the IPO for share repurchases.
Now roughly two years into the restructuring, analysts and investors wonder just how far Pfizer aims to go. Goldman, Sachs & Co. analyst Jami Rubin created a stir in March 2012 when she suggested, following a meeting with Pfizer management, that Read appeared to be open to an additional breakup down the road, explaining that each of the gigantic company's business divisions would be valued more highly outside of the Pfizer umbrella. The breakup plan, in theory, leads Pfizer down a path where it ultimately consists of a core pharmaceutical business and a generics company and then splits them in two, much in the way Abbott Laboratories has done with the now-standalone pharmaceutical entity AbbVie Inc. That theory has gained steam in the past week due to a published report from Bloomberg in which Gene Germano, the president of Pfizer's specialty care and oncology business, said that Pfizer would likely "evolve to two" business units.
In addition, rumors have persisted that Pfizer is readying a $2 billion bid for India-based Strides Arcolab Ltd.'s Agila Specialties unit, a division that creates injectable drug, most notably cancer therapies and antibiotics. Pfizer and Agila have been collaborative partners since 2010, through which the Indian company has been supplying largely generic oncology products for Pfizer, which, in turn, commercializes them. Such a deal would boost the value of Pfizer's generics business, giving it a significant player in injectables and helping soften the blow of lost revenue it is feeling through the expiration of patents such as wildly successful cholesterol drug Lipitor.
Zoetis, meanwhile, produces treatments (vaccines, parasiticides and anti-infectives) for diseases in livestock and pets. The unit brought in $4.2 billion in revenue in 2011, $3.2 billion over the first nine months of 2012, and has products in more than 120 countries in major geographic regions such as North America, Europe, Africa, the Middle East, Latin America and Asia-Pacific, selling to veterinarians, livestock producers and animal owners.
Zoetis posted $482 million in adjusted net income over the first nine months of 2012, a 27% jump over the first nine months of 2011.
Steven C. Todrys joined Evercore's investment banking business as a senior adviser, focusing on transactional tax and structuring solutions. For other updates launch today's Movers & shakers slideshow.
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