UPDATE 4-Pfizer selling Capsugel to KKR for $2.38 bln

* Pfizer sees more share buybacks as result of deal

* Drugmaker said in October it was exploring sale

* Pfizer shares rise 0.7 percent
(Adds new analyst comment, updates shares)

By Lewis Krauskopf

NEW YORK, April 4 (Reuters) – Pfizer Inc (PFE.N: Quote, Profile, Research) said it
struck a deal to sell its Capsugel unit, the world’s largest
maker of hard capsules, to private equity firm KKR & Co (KKR.N: Quote, Profile, Research)
for nearly $2.38 billion.

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

The sale to KKR comes as the world’s largest drugmaker 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 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 profits.

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 JP
Morgan pharmaceuticals analyst Chris Schott.

Sanford Bernstein analyst Tim Anderson said that in a
similar transaction in 2007, Blackstone Group (BX.N: Quote, Profile, Research) paid
roughly two times sales in acquiring Catalent Pharma

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 drugmaker
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 $68.0 billion previously. It
expects 2012 revenue of $62.2 billion to $64.7 billion, down
from $63.0 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.

Pfizer shares rose 14 cents to $20.52 in afternoon trading
on the New York Stock Exchange.
(Reporting by Lewis Krauskopf additional reporting by Megan
Davies; editing by Maureen Bavdek and John Wallace)

UPDATE 4-Pfizer selling Capsugel to KKR for $2.38 bln