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Pfizer has indicated it is reviewing possible further divestitures under its new CEO, Ian Read. (Timothy A. Clary/AFP/Getty Images/Timothy A. Clary/AFP/Getty Images)
Pfizer has indicated it is reviewing possible further divestitures under its new CEO, Ian Read. (Timothy A. Clary/AFP/Getty Images/Timothy A. Clary/AFP/Getty Images)

Pfizer selling Capsugel unit to KKR Add to ...

Pfizer Inc. said it struck a deal to sell its Capsugel unit, the world's largest maker of hard capsules, to private equity firm Kohlberg Kravis Roberts & Co. for nearly $2.38-billion (U.S.).

Pfizer, which said in October it was exploring the sale of Capsugel, said it expects to make additional share repurchases this year as a result of the deal, beyond its previous plans for $5-billion in buybacks for 2011. Its shares rose 0.9 per cent.

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The sale to KKR comes as the world's largest drug maker has indicated it is reviewing possible further divestitures under Ian Read, its new chief executive officer. Pfizer's initial decision to explore options for Capsugel came a few months before Mr. Read was named CEO.

"They're looking at ways to make the company smaller," said Jon LeCroy, an analyst with Hapoalim Securities. "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 faces the loss later this year of exclusive rights to its huge-selling Lipitor cholesterol drug, which will hurt the company's sales and profit.

Capsugel had about $750-million in revenue last year and manufactured more than 180 billion hard capsules.

At 3.2 times sales, the deal price amounts to a "reasonable multiple" for a stable, low-growth business, according to JPMorgan pharmaceuticals analyst Chris Schott.

Sanford Bernstein analyst Tim Anderson said that in a similar transaction in 2007, Blackstone Group paid roughly two times sales in acquiring Catalent Pharma Solutions.

Financing for the Capsugel deal is being led by UBS, Barclays and Deutsche Bank, said a source familiar with the situation. It was not immediately clear how much of the purchase price is being funded by debt and how much by equity.

In addition to hard gelatin capsules, Capsugel's business includes liquid, softgel, non-animal and fish gelatin capsules, for use in pharmaceutical products and dietary supplements.

Capsugel, whose global headquarters will remain in New Jersey, was created in the early 1960s by drug maker Parke-Davis, which was part of Warner-Lambert when Pfizer acquired it in 2000 in a blockbuster deal.

Its customers have included Pfizer as well as outside companies in the pharmaceutical, consumer medicine and health and nutrition industries.

As a result of the sale, which is expected to be completed in the third quarter, Pfizer slightly lowered its revenue targets for this year and next year.

For 2011, it now projects revenue of $65.2-billion to $67.2-billion, down from $66-billion to $68-billion previously. It expects 2012 revenue of $62.2-billion to $64.7-billion, down from $63-billion to $65.5-billion previously. It maintained its other financial forecasts for 2011 and 2012.

Pfizer's financial advisers on the deal were Morgan Stanley & Co. and Guggenheim Securities.

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