Something completely different

Pfizer: Pfizer's years of expansion haven't fattened shareholders' wallets. With the executives responsible for bloating Pfizer leaving, it's a perfectly good time for a fresh start. Spinning off the animal health, consumer and nutrition units looks a relatively easy way to slim down.

The company isn't alone in the pharmaceutical world with problems. Pfizer has been a serial acquirer, Eli Lilly pretty much refrained from big deals and Merck's history falls somewhere between the two. Yet, the shares of each have declined more than 40 per cent over the past decade, thanks to falling lab productivity.

While mergers bring cost savings - Pfizer promised to cut 19,000 employees after buying Wyeth in 2009 - larger firms haven't been so effective at discovering new drugs. The result appears to be a wash. The industry's only winners have been shareholders of the takeover targets.

Now Pfizer is facing the after-effects. Its biggest product, high cholesterol treatment Lipitor, loses US patent protection this year. That will hurt in 2012. But investors are well aware, and have marked down the stock accordingly. The company trades at 10 times estimated earnings for 2012, which is in line with its rivals. Yet, Pfizer arguably has a better pipeline of upcoming drugs.

While buying more wouldn't make much sense, selling could. Pfizer has acquired various bits and pieces such as an animal drugs business, a consumer goods arm that includes ChapStick and Robitussin, and a unit that sells baby formula. These divisions reported combined sales of $8.3 billion last year, or about 12 per cent of Pfizer's revenue. The market doesn't seem to pay much heed.

Spinning them off should improve their value. Bristol-Myers Squibb hived off formula maker Mead Johnson in early 2009, and the new company's stock has since more than doubled. It now trades at 19 times estimated 2012 earnings. Likewise, consumer goods should be valued more highly. Procter & Gamble, for example, trades at 14 times next year's estimated profit. And animal health is a steady performer, which, according to Sanford Bernstein, is worth perhaps 20 times estimated 2012 earnings.

Pfizer and its shareholders have been slowed partly by the company's size. A diet would be profitable, and shouldn't be hard to start.