Why did Pfizer sell their Consumer Healthcare Business to Johnson and Johnson?

Answer 1

The acquisition of Pfizer's consumer Health business by J&J can be explained by the differing strategy of the two companies. While the two companies directly compete with each other they envision dramatically different ways in which to maximize shareholder value over the long-term while dealing with similar issues with in the market place. For example, the pharmaceutical business is facing an increasing number of generics entering the market. Also, both the pharmaceutical and medical device business are becoming more tightly regulated as to who pays for the products[1]. Both these issues translate into lost revenues for companies like Pfizer and J&J. Pfizer In order to compensate for losses from several of its blockbuster drugs losing patent protection Pfizer adopted a strategy to invest more resources from the company's core pharmaceutical business. Pfizer is positioning itself for the long term through the development of new drugs[2]. The company does not value high levels of diversification.[3] J&J J&J's overall strategy is to stay balanced among the three operating units and add revenue through growth in each - which has been the historical strategy with the company.[4] Revenue in 2005 was for the consumer business was $9.1 billion, or 18% of J&J's total $50.5 billion in sales for the year. Investors were initially surprised that J&J did not spend their cash in the pharmaceutical division where growth had been slowing or in the higher growth medical device area. Therefore, analysts took that as an indication that there were not better opportunities in pharmaceuticals and medical devices.[5] However, this deal does reduce the dependence on the more volatile pharmaceutical and medical device markets. After the deal, the mix consisted of 40% pharmaceuticals, 35% medical devices, and 25%, but pre-deal it consisted of 45%, 38%, and 18% respectively.[6]
----