Thursday February 26, 6:03 pm Eastern Time
Analysts support sale of Pfizer medical units
By Ransdell Pierson
NEW YORK, Feb 26 (Reuters) - Wall Street analysts Thursday endorsed Pfizer Inc's (PFE - news) decision to put on the
auction block three remaining medical device units whose lackluster sales and poor margins have been a drag on company
earnings.
Shares of Pfizer rose 1-13/16 to 90-3/16 on a day when most of its peers suffered losses or eked out only slight gains.
Pfizer said Thursday afternoon it was exploring strategic options for the company's Medical Technology Group, including
divestiture of all or part of the three businesses in a public or private transaction.
''The MTG businesses face an environment of rapid technological change, intensifying competition and a highly dynamic
marketplace,'' William Steere, chief executive officer of Pfizer said in a news release.
The blue-chip drug company said it had retained Morgan Stanley as its investment banker and Lazard Freres as a consultant in
exploring options for the group.
The businesses include Howmedica, an orthopedic technologies unit; Schneider Worldwide, a cardiology and radiology unit;
and American Medical Systems, a urological implants unit.
ABM-AMBRO Securities analyst Mario Corso said the units together accounted for about $1.1 billion of Pfizer's $12.5 billion
in 1997 sales.
''But sales of the three units were flat in every quarter of 1997 compared with those of 1996,'' Corso said, in contrast to a 9
percent year-on-year increase in sales for the company's highly profitable prescription drugs business.
''Clearly these medical units have been a drag on Pfizer's growth and have been a much smaller margin business than the
drugs,'' Corso said.
He said Pfizer on January 30 sold another medical devices unit, Valley Labs, to U.S. Surgical Corp (USS - news) for $425
million -- about 1.4 times the unit's 1997 earnings of $300 million. The unit sold electrosurgical and ultrasonic equipment.
''It's possible Pfizer could get about $1.5 billion for the other three units,'' Corso said, assuming the same price of about 1.4
times annual sales.
A.G. Edwards analyst Ken Nover agreed with Corso that one of the biggest benefits of unloading the three firms would be the
elimination of a low-profit distraction.
''The money they will bring in from selling the medical units is no big deal. The main advantage would be giving Pfizer a stricter
focus on pharmaceuticals,'' Nover said.
''There has been little synergy between medical devices and pharmaceuticals anyway, so why not sell the devices,'' Nover said.
Corso said owning medical device units was once ''the rage'' among big drug companies, but eagerness has waned with
worsening margins.
American Home Products Corp (AHP - news), for instance, agreed last month to sell its Sherwood-Davis & Geck subsidiary
for $1.77 billion to Tyco International Ltd [NYSE:TYC - news].
The AHP unit, based in St. Louis, generated annual sales of $1 billion from catheters, needles and syringes. Tyco, based in
Exeter, N.H., is the parent company of Kendall Co of Mansfield, Mass. |
