Sanofi and Merck set for animal-health sell-off

 

 

Sanofi-Aventis and Merck & Co are gearing up to sell parts of the world's largest veterinary drugs operation, offering smaller players in the US$19-billion animal health industry a last clear chance to bulk up.

 

Merck's US$46-billion merger with Schering-Plough last year gave it the latter's Intervet/Schering Plough Animal Health business, which it is now combining with Sanofi's Merial in a joint venture with US$5.3 billion in sales.

 

As part of that process, the two drugmakers are now looking to shed assets worth several hundreds of millions of dollars, as they await regulatory approval for creating a group that would hold 29% of the global animal health market.

 

Traders said Sanofi and Merck met investment banks recently and are likely to name advisers around the end of May. It is not clear if the duo hopes to achieve a single sale or will settle for a series of smaller deals.

 

The US-French duo may have to divest businesses accounting for about 9-12% of annual sales, or some US$450-650 million, to cut overlaps and placate competition watchdogs, traders said.

 

This would also be the last opportunity for players hoping to scale up through the acquisition of major brands with strong market positions and the final chance to attain a competitive position in the important veterinary vaccines category.

 

In March, Merck chairman and chief executive officer Richard Clark said Intervet/Schering-Plough traditionally had operating margins in the low 20s as a percentage of sales, but Clark was optimistic synergies and revenue benefits from combining with Merial would have a positive impact.

 

Initially, Merial was also a joint venture between the two companies, but Merck put its half up for sale last year to speed the completion of the main Schering-Plough deal. Several major rivals showed interest in parts of the business.

 

Merck eventually sold its share back to Sanofi, but Eli Lilly, Bayer and Novartis were among other bidders for the stake, sources familiar with the matter said at the time. In March, sources said Bayer remained eager to boost its animal-health business.

 

The trio hold third, fourth and fifth place by sales in the global market, behind Merck-Sanofi and Pfizer, according to traders. Other smaller players that could be interested include King Pharmaceuticals' Alpharma, Phibro and Virbac.

 

The drug industry's other 2009 mega-merger, Pfizer-Wyeth, also re-shaped animal health, creating a firm with a fifth of the global market. Pfizer later sold some veterinary assets to Boehringer Ingelheim, the family-owned German company that is the world's biggest unlisted drugmaker, to win anti-trust approval.