Pfizer Inc. PFE -0.71% is considering a January

Pfizer Inc. PFE -0.71% is considering a January or February launch of a roughly $4 billion U.S. initial public offering for animal-health unit Zoetis Inc., according to people familiar with the discussions.

A final launch decision will depend on market conditions, these people said. But Pfizer believes that an IPO is the way to go for Zoetis, as the unit's hoped-for $20 billion valuation has priced it out of the range of potential strategic buyers, they added.

Pfizer last year began planning to divest animal-health products, which it believes aren't core to its human-health businesses, to raise cash and return it to shareholders in the form of a stock buyback.

A Pfizer spokeswoman declined to comment on the offering or its thinking, citing the IPO quiet period.

Zoetis would be one of the biggest players in the animal-health industry, having generated $3.1 billion in revenues in the first nine months of 2012. Zoetis makes a variety of vaccines and drugs for pets, cattle and other farm animals. Among its products are antibiotics treating pneumonia in cattle and vaccines against the E. coli bacteria in chickens. It also sells a Lyme disease vaccine for dogs.

Buyers such as Novartis AG NOVN.VX +0.09% and Bayer AG BAYN.XE +0.18% have previously expressed interest in the unit, but that appears to have cooled lately as the price tag approached $20 billion, according to people familiar with the discussions.

Pfizer has indicated that an IPO is the best way to achieve that valuation after adjusting for the potential tax bill of a sale, the people said.

The planned offering of around $4 billion, or just under 20% of Zoetis, is expected to be the first step ahead of a spinout of the remaining 80%-plus to Pfizer's shareholders. Under U.S. tax law, this will allow Pfizer to avoid paying capital-gains taxes on the divestiture of the unit.

To further preserve tax treatment of the deal, Pfizer will initially exchange shares in Zoetis for some of Pfizer's outstanding debt before the underwriters of the IPO sell that stock to the public, according to the prospectus.

The spinout could also deliver additional benefits to shareholders by enabling Pfizer to acquire its own shares and retire them, reducing its share count and boosting earnings-per-share.

The unit will have more than 9,000 employees when the separation is completed, the prospectus said.

J.P. Morgan Chase JPM +0.02% & Co., Bank of America BAC -0.66% Merrill Lynch, and Morgan Stanley MS +0.56% are leading the offering. Representatives of the banks also declined to comment.

Pfizer has said that development of animal drugs is faster than human drugs, and that the way the drugs are sold are also distinct from Pfizer's other businesses.

If successful, Zoetis's offering could kick off a wave of deals in the 2013 IPO market, as it would be the biggest U.S. company IPO since Facebook Inc.'s FB +2.34% $16 billion IPO in May.