Shares in Zoetis Inc. fell more than 12% Friday amid speculation that a possible acquisition of the animal-health giant by Canada’s Valeant Pharmaceuticals International would not represent much of a premium for investors.
The stock had closed Thursday at $55.38, up 11%, after The Wall Street Journal reported that Valeant had made a preliminary approach to buy Zoetis, which was spun off from Pfizer in 2013 and has long been considered by analysts to be a potential takeover target.
The company is the largest seller of vaccines and medicines for livestock and household pets. Its shares had been trading at all-time highs and it had a market capitalization of $25 billion before the WSJ’s report.
On Friday, the stock gave back its gains from Thursday, closing at $48.62, down 12.2%, as analysts cautioned investors that it may be difficult for Zoetis to see a bid at levels higher than the closing price on Thursday.
Zoetis’s stock (at Thursday’s closing) “garners a multiple of 29.6 times our 2016 earnings estimate and 18.7 times our 2016 EBITDA estimate,” wrote William Blair analyst John Kreger. Recent big M&A deals in the animal-health sector have commanded multiples ranging from 15 times to 22 times forward EBITDA.
Zoetis’s high valuation makes “the possibility of a take-out [for investors] … relatively low,” agreed Piper Jaffray analyst Kevin Ellich.
The possibility of a Zoetis sale has been the subject of speculation since activist investor William Ackman took an 8% stake in Zoetis last November and then gained a board seat. Ackman also owns 5.7% of Valeant.
The Canadian company, the WSJ reports, has made a string of recent deals that have shaken up the drug indusry and CEO Michael Pearson has indicated that animal health is an area of potential interest. The world-wide market for animal medicines is worth $23 billion and growing as pet ownership increases.