Novice Investing - Pfizer Clearing Listerine, others

Date: Friday 29th 2008f August 2008 09:45:48 PM

Pfizer Clearing Listerine, others - 03/29/2006

By: Novice Investing Staff

Pfizer Inc. (PFE) had been shopping around to sell its consumer products division for quite some time. Recent indication shows possible bidders that include Colgate Palmolive and GlaxoSmith Kline. As always, it is meaningless to talk about something without the price tag. So, what is the price tag? In this case, Pfizer reportedly is asking for $ 14 Billion for its division.

The details of the products sold is not widely-known. However, it include products such as Bengay pain-relieving cream, Sudafed cold tablets and Listerine mouthwash. This consumer products division generate sales of $ 3.88 Billion. Therefore, the question now is if Pfizer's asking price is too much.

Colgate Palmolive might want this consumer division badly since rival Gilette and Procter & Gamble had merged last year. Therefore, we can compare Colgate's income statement and judge the potential value of the deal. In recent years, Colgate has a net profit margin of 11.86%. Assuming that Pfizer's consumer product division has the same efficiency, the division had a profit of $ 460.2 Million. If Colgate pays at 13-15 times earnings, which is considered fair value, the consumer product division should fetch a price of $ 6.9 Billion. Let Colgate be generous and pay about 24 times earnings. (the same multiple as Colgate's stock price). At that point, Colgate needs to pay $ 11.1 Billion, which is still far lower than the $ 14 Billion Pfizer is asking for.

However, please note that this calculation assumes a 0% growth in future revenue of Pfizer's consumer product division. Who knows what the future will hold. If Colgate feels that it can create a synergy for the new acquisition, Pfizer might get the $ 14 Billion it was looking for.



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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding CNET Networks Inc. (CNET) or any other securities.

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