New Beginnings: Zoetis, I-5 Emerge from Past Lives

Today marked the beginning of two new entities, both created largely in whole from their former corporate beings and both significant within their niches in the pet and animal health world: Zoetis Inc. and I-5 Publishing LLC. Both have hopes of healthier growth on their own.

The similarities end abruptly there. 

Zoetis, formerly Pfizer Animal Health, was spun off by parent Pfizer Inc., raising $2.2 billion for a fraction of the business. Pfizer retained about 83 percent of Zoetis, which now has a market value of roughly $12.5 billion. Zoetis’s stock price climbed more than 20 percent today, its first of trading, closing at $31.01 from its $26 opening, which was higher than its expected range of $22-$25. Its IPO was the largest since Facebook’s last May.

Zoetis is the largest player in animal health, and with its diversified product offerings will serve as a broad proxy for the health of the animal health industry. Its business is fairly evenly divided between food animal and companion animal, between pharmaceuticals and biologicals, between the Americas and the rest of the world.

I-5 Publishing, on the other hand, is a joint venture of publishing industry executives David Fry and Mark Harris created to buy certain assets of BowTie Inc., once the dominant publisher of pet and animal magazines and books (and my former employer). Without disclosing terms, the pair told Folio magazine that the deal was in the $10 million plus range. Certainly not disclosed was how much BowTie owed the pair’s respective companies, both of which were vendors.

Harris is co-founder and co-owner of National Publisher Services (NPS), which provides publishers with distribution, circulation and other services. Fry is chief technology officer of family-owned Fry Communications, a major printer for BowTie, and chairman of NPI Ventures LLC. NPI was formed by David and Henry Fry to invest in non-print initiatives, such as its 50-percent stake in NPS.

I-5, which is now operating out of BowTie’s former headquarters in Irvine, Calif., and its offices in Chicago and Lexington, Ky., acquired BowTie’s magazines, including Dog Fancy, Cat Fancy, Pet Product News International, Veterinary Practice News, Horse Illustrated; online properties including AnimalNetwork.com, DogChannel.com, CatChannel.com, BirdChannel.com, ReptileChannel.com, and FishChannel.com; and at least some BowTie Press book titles. BowTie Inc. is owned by Norman Ridker, who will not be part of I-5.

I-5 retained about 85 percent of current BowTie employees with the transition, including senior management: chief financial officer Nicole Fabian, chief content officer June Kikuchi, and vice president of consumer marketing Dolores Whitlo. Most, if not all, of the company’s book editors were laid off, so presumably the company is shifting away from the book business. Fry told the Orange County Register that I-5 ultimately expects to retain more than two-thirds of the employees and does not plan to shutter any more titles, although it will be reviewing their profitability. 

In July 2012, BowTie closed several publications, including Aquarium Fish, Bird Talk, Water Garden News and Dog World. I-5 has acquired all dormant titles as well, but it has not announced any plans to resurrect any of them at this time. Indeed, BowTie had just pulled the plug on the WaterGardenNews.com site earlier this year, redirecting traffic to the Pet Product News International site and removing access to thousands of pages of information pertaining to the water feature industry.

BowTie had undergone several rounds of layoffs in recent years, including about 10 percent of its then workforce (including me) in July 2012.

Harris will serve as interim CEO of the company and has hired Daniel Ambrose, managing partner of advertising sales consultancy Ambro.com, as chief strategy officer for digital and advertising. “In today’s increasingly complex media market, a company that can quickly package and distribute targeted content and innovate multifaceted marketing solutions is essential,” Ambrose said.

I-5 is expected to make significant investments in upgrading the company’s computers and software. Much of its efforts will be on the digital side of the business.

“We are thrilled to bring these storied brands under our umbrella,” Harris said. “Combining the talented, passionate teams that have built such a robust content engine with the technology and expertise of our existing joint ventures creates the perfect platform on which to create an infinite variety of special-interest content for delivery in all formats.”

Indeed, the mood of surviving employees has shifted from doomed to cautiously hopeful.

Still, I-5 will face a challenge in restoring much of the goodwill BowTie has lost over the past few years as the company struggled: animal enthusiasts upset about magazines closing, contributors upset about long overdue payments, and strategic partners that saw ventures fall short of expectations.

I-5 apparently did not assume any of BowTie’s debt with the acquisition, with the possible exception of money owed to Fry and NPS. Many with knowledge of BowTie’s financial status had speculated it was headed toward bankruptcy. It had fallen behind in payments to contributors and other vendors. Representatives of I-5 have not yet responded to queries regarding how parties owed money by BowTie will be able to collect.

Ironically, on the day I-5 began operations, assets of BowTie’s sister company Thoroughbred Times, which declared Chapter 7 bankruptcy in September, were auctioned off in Kentucky, according to The BloodHorse, a rival of Thoroughbred Times. According to The BloodHorse report, Thoroughbred Times bankruptcy filing listed $1 million in assets and $5.3 million in debts to former employees, contributors, The Jockey Club and others.

Debt also plays a role in the Zoetis story, as the company completed a $3.65 billion debt offering shortly before the IPO. But with 2012 sales of $4.3 billion, that debt should be manageable.

Zoetis expects the overall food animal health market to grow at about 6 percent annually and the companion animal health market to grow at about 5 percent annually over the next several years. That suggests moderate growth for Zoetis, barring the unlikely prospect of spectacularly poor management.

Moreover, Zoetis will be able to focus on its own R&D and marketing initiatives, no longer playing second fiddle to human health. This in and of itself should contribute to its overall performance.

Pfizer retains the option to sell off part or all of its Zoetis holdings if Zoetis stock performs well, or spin it off tax-free to existing Pfizer shareholders if it lags. It is expected that Pfizer will be clear of Zoetis within 18 months.

The move to spin-off Zoetis was prompted by an effort to please investors that were looking for more sizzle from Pfizer’s stock. Indeed, off-loading Zoetis (and other non-human pharmaceutical businesses earlier) does give Pfizer an immediate return.

However, in the long run, both Pfizer and Zoetis may lose out on some of the R&D synergies, especially as the concept of One Health takes hold. That concept suggests the health of people, animals and the environment are all interconnected and Pfizer may yet regret losing its animal connection.