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Pfizer's Acquisition Of Hospira Looks Good

Market response to Pfizer's (PFE) acquisition of Hospira (HSP) was immediately favorable. Pfizer shares were up by about $1, to close Friday at $33.18. This article examines the acquisition and concludes that it increases the desirability of Pfizer as a long-term holding.

A Few Simple Tests

Based on market cap, Hospira is 7% of Pfizer, well under the 25% maximum size I prefer for acquisitions. While not exactly a bolt-on, it can be folded in easily, and integration should proceed smoothly. The deal is expected to be immediately accretive, to the tune of 10 to 12 cents per year, with more to come.

Hospira's margins are substantially lower than Pfizer's, and it's difficult to find a common metric by which to compare valuations. At the market price following the announcement, HSP has a P/S of 3.35, compared to 4.19 for the acquirer. EV/EBITDA checks in at 22.72, compared to Pfizer… Read More …