Facing a possible hostile takeover, veterinary drug maker Zoetis Inc. has authorized a $500 million stock buyback program and the sale of preferred shares to stockholders at a discount.
Neither action is guaranteed to happen. The first is at the discretion of the Zoetis board of directors, and the second—a so-called “poison pill”—would kick in if an investor acquires a 15 percent stake in the company.
Pershing Square Capital Management and its hedge fund manager, William Ackman, reported acquiring an 8.5 percent interest in Zoetis, the world’s largest animal health company. The investment was valued at $1.5 billion at the time of the Nov. 12 announcement.
The right to issue preferred stock is structured to protect shareholders and the company should the board of directors oppose a takeover offer, Zoetis reported Nov. 14. The option expires Nov. 16, 2015.
Chief Financial Officer Paul Herendeen called the stock repurchase program “an important tool for managing our allocation of capital, and it gives us additional flexibility to return capital to shareholders when it is not needed in the business.”
The financial news company Bloomberg reported that Ackman sees an opportunity to cut costs at Zoetis and improve shareholder dividends, perhaps setting the stage for a sale or a restructuring.
Among the potential buyers, Bloomberg stated, are Zoetis competitors Bayer AG, Merck & Co. and Eli Lilly & Co. as well as the Canadian human drug company Valeant Pharmaceuticals International Inc.
Zoetis, headquartered in Florham Park, N.J., makes vaccines and drugs for livestock and pets. The company was born in 2013 when Pfizer Inc. spun off its veterinary division.
During Zoetis’ first Investor Day on Tuesday, company executives outlined their financial goals for the next three years. Revenue is forecast to grow by at least 6.5 percent in 2015, reaching as high as $4.95 billion.
“Steady and growing demand for meat and milk proteins and pets for companionship represent an attractive market opportunity for Zoetis to help keep animals healthy and productive,” CEO Juan Ramón Alaix said.
“Our singular focus on animal health … [puts] us in a strong position to continue growing in line with or faster than the market.”