On Aug. 24 Pfizer, Inc. (PFE, Financial) received clearance from the Federal Trade Commission for its acquisition of Hospira, Inc. (HSP, Financial). The acquisition process has been ongoing since Feb. 5 when Pfizer first announced it would be acquiring Hospira. Given the FTC clearance the acquisition will likely be completed in September.
The Hospira acquisition will add low cost generic versions of biotech drugs to Pfizer’s product offerings, which are currently oriented around branded products. The Hospira business overall is primarily focused on generic injectable drug product offerings. The business is expected to be immediately accretive for Pfizer, bringing approximately $1.2 billion in quarterly revenue to the Pfizer business.
Hospira’s primary business line, Specialty Injectable Pharmaceuticals, reported second quarter revenue of $812 million. Revenue for the business division was up 3.44% from the second quarter of 2014 and increased 7.94% from the first half of 2014. In the second quarter the Specialty Injectable Pharmaceuticals business accounted for 68.6% of the firm’s revenue.
Other business divisions for Hospira also include Medication Management and Other Pharma. In the second quarter Medication Management accounted for 17.1% of revenue at $202 million and Other Pharma accounted for 14.3% of revenue at $169 million.
Pfizer will integrate all of the firm’s business segments within its Global Established Pharmaceutical business. In the second quarter of 2015 the GEP business accounted for 43% of the firm’s revenue at $5.1 billion. Hospira’s generic sterile injectables will add to Pfizer’s branded sterile injectable product offerings, creating a broader offering for injectable drugs overall. The acquisition will also allow Pfizer to capture greater market share in the growing generic sterile injectables business. Currently this business is expected to see total sales of $70 billion by 2020.
According to terms of the deal, Pfizer has agreed to pay $90 a share for all of the outstanding shares of Hospira for a total value of $17 billion. Following the acquisition Pfizer expects the integrated business to add earnings per share of $0.10 to $0.12 in the first year. Additionally the acquisition is expected to generate approximately $800 million in annual cost savings over the following two years.
The market has reacted favorably to the acquisition. Since the acquisition was announced on Feb. 5 Hospira’s stock has gained 38.71% while Pfizer’s stock has gained 1.71%. Year-to-date both companies have reported strong returns with Hospira up 46.68% to a most recent closing price of $89.85 on Aug. 24. Pfizer’s stock has also increased adding 3.15% year-to-date with a most recent closing price of $32.13.
Since the acquisition was announced a number of investment managers have actively bought both stocks. In the second quarter George Soros (Trades, Portfolio) of Soros Fund Management LLC added Hospira to his portfolio as a new holding buying 172,139 shares for a total value of approximately $15.2 million. Other investment managers increasing their holdings in Hospira in the second quarter included Jeff Auxier (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio).
In the second quarter two investment managers also added Pfizer as a new holding. Kyle Bass (Trades, Portfolio) of Hayman Capital Management bought 63,675 shares of Pfizer in the second quarter for a total value of approximately $2.19 million. Ray Dalio (Trades, Portfolio) of Bridgewater Associates also added Pfizer as a new holding in the second quarter buying 79,108 shares for a total value of approximately $2.72 million. Other investment managers with significant Pfizer share buy ins during the second quarter included Jeff Auxier (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio).
