Pfizer addresses speculation about divorce
- During a second quarter earnings call with analysts, Pfizer CEO Ian Read took a cautious tone when talking about a potential splitting up of the company, but noted a decision is still expected by year-end.
- Read elaborated on the steps Pfizer is taking to evaluate each of its businesses and how it’s still dedicated to building out all areas of the company.
- Pfizer is still optimistic changes in tax law may be forthcoming from Washington, allowing it to repatriate more of its off-shore earnings.
Pfizer continues to waver on whether to separate the behemoth company into multiple standalone businesses–including the established products unit. But Read reiterated its promised decision will still be delivered by the end of 2016.
"We will be thoughtful in evaluating the virtues of split over the coming months. Our key and primary motivation here is shareholder value and return to shareholders. I don't view there being a wrong answer here, " said Read on Tuesday
The company reorganized internally in 2013 when talks of a split began, separating the company into three units that not only operated independently, but had separate financials – making a future spinout easier. Yet, Pfizer has waffled over the last three years about the merits of a split, pushing shareholders to speculate that it’s all just hype.
Furthering the skepticism was Pfizer’s pursuit of big-ticker deals like its bid for AstraZeneca and its later failed acquisition of Allergan. A $17 billion takeover of Hospira in 2015 only deepened those doubts.
"Each of our businesses is performing well and will continue to pursue the strategies including opportunistic business development where appropriate to accelerate our strategy and a strategy that will best position them for long-term success," added Read on the call.
Beyond just the enormity of Pfizer's business, the company's large cash holdings abroad and the high tax on repatriated earnings charged by the U.S. have underpinned thoughts of of a breakup and driven interest in large mergers.
So far, the U.S. Treasury has been able to thwart Pfizer’s grab for a lower tax rate, even pushing the company to call off its merger with Allergan in the eleventh hour.
Yet Read explained a split wouldn’t necessarily mean an advantageous tax rate–at least not right off the bat.
"You know a separation doesn't under current tax laws facilitate a speedy ability to change the domicile for either of the companies. Under the separation rules now, both companies would be held to the standard of the combined company for three years post the separation. So under present tax laws, I don't see a separation as being a quick route to improving the tax situation," noted the CEO.
Still, Read sees a silver lining. "I am and remain optimistic that this tax issue will be dealt with by Washington hopefully in the near future. And I think there is a general consensus that we do need to have tax reform to enable U.S. multinationals to be competitive," he said.
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