Pfizer (PFE), the world’s biggest drugmaker, agreed to sell its Capsugel manufacturing business to KKR & Co for $2.38 billion in cash and said it will buy back additional shares with the proceeds.
Pfizer lowered its revenue forecast range by $800 million to $65.2 billion to $67.2 billion and said it will add to its previously announced plan to buy back $5 billion in shares this year. Pfizer said in October it was considering a sale of the unit, and Chief Executive Officer Ian Read said on February 1 that he was evaluating additional business units.
The acquisition of Capsugel is KKR’s second-largest deal in the past year, according to data compiled by Bloomberg. In November, a KKR-led group agreed to buy Del Monte Foods Co for $5.3 billion including debt. The Capsugel unit made more than 180 billion hard capsules for drugs in 2010, drawing about $750 million in sales, Pfizer said today.
“It looks like a fair price for both sides, and maybe KKR can do a better job with it,” said Les Funtleyder, a New York-based fund manager at Miller Tabak & Co, which owns Pfizer shares. “Other pharmaceutical companies are probably looking through their portfolios as we speak.”
KKR, the New York-based private equity company run by Henry Kravis and George Roberts has a portfolio of businesses with more than 900,000 employees $210 billion in annual sales, the company said. KKR’s investments in the health-care industry include HCA Holdings, the largest publicly-traded US hospital chain, and Biomet Inc, a manufacturer of orthopedic medical devices. Shares rise
Pfizer rose 17 cents to $20.55 at 9.36 am in New York Stock Exchange composite trading. The shares had gained 19 per cent in the 12 months before today.
Pfizer is facing a loss of revenue from its best-selling cholesterol pill, Lipitor, which faces competition from cheaper generic substitutes as its patent expires in the US in November. Investors have been pressing Read to slim down the company and focus on drug development. Pfizer acquired the Capsugel unit in its 2000 purchase of Warner-Lambert Co.
There have been 81 acquisitions of US health-care companies by private equity companies in the past five years, with an average value of $1.01 billion and a typical premium 64 per cent. The biggest was the $32.2 billion purchase of hospital operator HCA Holdings in 2006 by funds led by New York- based KKR and Bain of Boston.
Pfizer and KKR expect to complete the deal in the third quarter. Morgan Stanley and Guggenheim Securities LLC were financial advisers for the drugmaker, while Cadwalader, Wickersham & Taft LLP and White & Case LLP provided legal counsel. Simpson Thacher & Bartlett LLP acted as legal counsel for KKR.
