Does Pfizer Inc. (PFE)’s Unwinding of Its Stake in Zoetis Inc (ZTS) Offer Value for Either Company’s Shareholders?

Fewer Pfizer Shareholders?

Many industry observers have noted that this deal will produce favorable conditions for Pfizer Inc. (NYSE:PFE)’s shareholders and permit the larger company to divest from a business in which it clearly has little operational interest. Given the amount by which Pfizer’s stock price has increased over the past two years, it is not inconceivable that a significant number of the company’s shareholders would choose to exchange the entirety of their stakes for positions in Zoetis. Were this to occur, it could substantially reduce the number of individual Pfizer shareholders and boost the value of the remaining shareholders’ holdings. As such, current Pfizer shareholders must think long and hard about playing this deal.

What Might Happen After the Spin-off

Pfizer has publicly stated that it wishes to spin off the bulk of its Zoetis holdings through this transaction. However, the possibility exists that this rather large offering will be under-subscribed. Accordingly, Pfizer Inc. (NYSE:PFE) has a number of back-up plans in place to offload the rest of its holdings in a timely fashion. If this current transaction is not wildly successful, the company has indicated that it could mount an additional secondary offering in 2014 or issue a special dividend of Zoetis stock to its shareholders of record. If it is fully subscribed, this deal will result in the exchange of about 400 million Zoetis Inc (NYSE:ZTS) shares.

Long-Term Outlook and Ways to Play

Although the cancellation of a promising cancer drug in the late stages of its approval process represented a major setback for Pfizer, the company appears to have a strong pipeline and plenty of fundamental momentum. Going forward, the company should benefit from growing specialization within the pharmaceutical industry and may leverage its position as the largest North American drug-maker. Likewise, Zoetis may benefit from growing demand for high-tech pet and livestock medications.

In sum, investors who wish to play this deal have two good options. Those who believe in Pfizer’s potential may wish to avoid the offering and count on a post-deal appreciation in the value of their holdings. Alternatively, shareholders who see Zoetis as a better vehicle for growth may wish to pocket this deal’s substantial premium and exchange their Pfizer Inc. (NYSE:PFE) holdings. In either case, this transaction offers exciting opportunities for investors in these two solid companies.

Mike Thiessen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Does Pfizer’s Unwinding of Its Stake in Zoetis Offer Value for Either Company’s Shareholders? originally appeared on Fool.com.

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