Pfizer(PFE) recently struck a deal with Kohlberg Kravis Roberts & Co L.P. (KKR) for the sale of its Capsugel unit. Pfizer said that it will be selling the unit for $2.375 billion in cash. The sale price looks good at 3.2x trailing 12-month sales.

Capsugel, which is a part of Pfizer’s Diversified business segment, is a provider of hard capsules and drug-delivery systems. The unit posted sales of about $750 million in 2010 and manufactured more than 180 billion hard capsules in 2010.

Pfizer had initially announced its intention to divest the Capsugel unit in early October 2010. The company decided to evaluate strategic alternatives for Capsugel in order to optimize its business mix and leverage its competitive strengths.

Revenue Guidance Tweaked

With the announcement of the agreement, Pfizer adjusted its revenue guidance for 2011 and 2012 to reflect the impact of lost Capsugel sales. The company now expects 2011 revenues in the range of $65.2 – $67.2 billion, down from its earlier guidance range of $66.0 – $68.0 billion.

Meanwhile, 2012 revenue guidance was reduced by $800 million to $62.2 – $64.7 billion (from $63.0 – $65.5 billion). The company did not make any other changes to its guidance.

The cash received from the Capsugel sale will be utilized to boost Pfizer’s share repurchase program. The company, which has already announced a $5 billion share buyback program for 2011, expects to spend additional dollars on share buybacks in 2011. The Capsugel unit sale is scheduled to close in the third quarter of 2011.

Neutral on Pfizer

With the Lipitor patent expiration coming up later this year, near-term earnings growth at Pfizer will come in the form of cost-cutting and share repurchases. While Wyeth brings with it an attractive biologics platform and some complementary products and businesses, we do not believe they are enough to sustain long-term top-line growth.

We see the merger as mostly an opportunity for Pfizer to cut additional costs. Longer-term growth will be dependent on the success of drug development.

 
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