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Pfizer to sell Capsugel for $2.4bn, no decision on other divestitures yet

By Gareth Macdonald , 05-Apr-2011
Last updated on 05-Apr-2011 at 12:57 GMT

Pharmaceutical giant Pfizer has agreed to sell Capsugel, its drug delivery technology unit, to US investment group Kohlberg Kravis Roberts & Co (KKR) for $2.4bn (€1.7bn).

The divestiture, which is expected to complete in the third quarter of 2011 subject to regulatory approval, will see Capsugel maintain both its US headquarters and workforce under the leadership of current chief Guido Driesen.

Pfizer, which cut its revenue guidance for the year from between $66bn and $68bn to between $65.2bn and $67.2bn, said it will use the proceeds of the sale to fund its stock repurchase programme.

Strategic review

Capsugel’s future has been the subject of considerable speculation since October last year when Pfizer called in Morgan Stanley to review the capsule manufacturing specialist’s business prospects.

This chatter intensified last month when Sanford C Bernstein analyst Tim Anderson suggested Pfizer was close to divesting the unit, along with its generics, consumer health and nutritionals divisions, to refocus on its core drug business.

Predictably, given this build-up, news of the sale agreement caused much excitement among analysts with some predicting that it will be the first of a number of divestitures Pfizer makes this year.

J.P. Morgan analyst Chris Schott opened his note to investors with the comment “So it begins…” before commending Pfizer’s plan to buy back shares and predicting that other divestitures would be well received.

The was echoed by Jon LeCroy from with Hapoalim Securities, who suggested the sale fits recently appointed Pfizer CEO Ian Read’s efforts to streamline the drug giant.

He told Reuters that: “[Pfizer is] looking at ways to make the company smaller," adding that "the key for any company obviously is getting back to growth, and Pfizer is so big, it's almost impossible for them to do that."

Pfizer spokeswoman Joan Campion told in-Pharmatechnologist.com the firm expects to complete its review this year but “at this point, no decisions have been made about specific assets or businesses other than Capsugel.”

Investment not downsizing

Capsugel, whose primary business is with the pharmaceutical and nutrition sectors, generated $752m in revenue in 2010, up $12m on the contribution it made in 2009 but some way short of the $767m it achieved in 2008.

Campion explained that: “The year-over-year decrease Capsugel's revenue in 2009 was primarily due to the unfavorable impact of foreign exchange. We've not provided specific guidance for Capsugel revenues for 2011.”

She went on to say that: “Capsugel is a unique business, which we believe has a strong potential for growth outside of Pfizer.”

KKR spokeswoman Estelle Guillot-Tantay was equally upbeat about Capsugel’s prospects.

She told in-Pharmatechnologist.com that market factors like the ageing population, the increasing use of oral medications, and the growth of the generics sector are key growth opportunities for Capsugel.

Guillot-Tantay added that the acquisition was “not predicated on downsizing” and that, at this stage, no workforce reductions or facility sales are planned.

Additionally, in a press statement Henry Kravis, one of KKR's co-founders said: “We look forward to working with Capsugel’s talented employees and investing in this business.”

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