In announcing a $500 million share repurchase program today, Zoetis Inc (NYSE:ZTS) appears to be playing a deft game with activist hedge fund manager Bill Ackman.

On the one hand the world’s largest animal health company, as the firm bills itself, appears to be reading right from the activist playbook, walking in lock step with Ackman. On the other hand the firm is making it more difficult for Ackman, and his rumored potential partner, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX), to take control.

The press release started out nondescript enough:

Zoetis, the world’s leading animal health company, today announced that its Board of Directors has authorized a $500 million share repurchase program as part of its capital allocation plans.

Bill Ackman and Zoetis in talks

There is no confirmation that Ackman had requested such a maneuver, but sources have indicated that communication between Zoetis Inc (NYSE:ZTS) and Ackman and/or his activist protege hedge fund, Sachem Head, who he is teaming up with on the bid, has likely taken place. If a detailed conversation had occurred, one might assume that Ackman politely outlined methods that he felt Zoetis might “improve” shareholder value.  If Zoetis is smart, they are listening and doing a lot of head nodding during the conversations. A “yes sir, Mr. Ackman” is not necessarily required… yet.

zoetis logo

The press release continued:

The shares are expected to be repurchased at the discretion of management, depending on market conditions and business needs. The authorization allows for repurchases to be conducted through open market or privately negotiated transactions or otherwise.

Zoetis’ share repurchase program

While adopting a “shareholder friendly” share repurchase program, the release also notes management has the opportunity to purchase shares as it sees fit – at a time of its choosing. Timing the share repurchases could be interesting and one might wonder at what point does management think the stock is a value buy? The stock price is currently near an all time high at $43.70, well off its low near $28 per share hit this past April and stretching traditional value metrics.

“A share repurchase program is 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,” said Paul Herendeen, Executive Vice President and Chief Financial Officer of Zoetis Inc (NYSE:ZTS). “We remain focused on investing capital internally to help grow the business; completing complementary business development activities that can generate additional value; and returning capital to shareholders as part of our total value proposition.”

One wonders if the “total value proposition” Herendeen refers to might also include recent moves that could be construed as an attempt to block Ackman in a hostile takeover bid.  The firm purchasing certain assets from Abbott Laboratories (NYSE:ABT) for $255 million makes it a little harder for an acquiring company to digest, but the adoption of a poison pill provision really leaves one scratching their heads in terms of how this adds to the shareholder value proposition?