Saturday, June 27, 2009

Financial Times Claims Animal Health Business Deal With Sanofi-Adventis is "Near"

The online version of London's Financial Times had, back in late March of 2009, also run a "rumors" piece that very accurately presaged Johnson & Johnson's filing for arbitration (re Remicade and Simponi non-US rights reversion) -- so I'd tend to give this piece just a little more credence than it might otherwise be entitled, simply on its face.

What was most intriguing to me was the relative prominence that FT's stringer Andrew Jack, in London, allocated to the divestiture of all the Animal Health businesses (as I have, before) -- even in the face of still-operative comments to the contrary from Merck CEO Dick Clark. From Financial Times, then [UPDATED version of this story here]:

. . . .Merck. . . is close to restructuring its lucrative animal medicines assets in a wide-ranging deal likely to be finalised in the next few weeks with its partner Sanofi-Aventis that could earn it more than $4 $10 billion. . . .

Merck is considering whether to fold Schering-Plough’s animal health division into Merial in exchange for a fresh balancing cash injection from Sanofi-Aventis, to sell them to a third party, or to sell its own stake in Merial. . . .

Merial, established as a joint venture in 1997, generated sales last year of $2.8 billion.

Schering-Plough’s own animal health products and those of Intervet, which it acquired from Akzo Nobel in 2007, generated [revenues of] nearly $3 billion last year.

Chris Viehbacher, the head of Sanofi-Aventis appointed at the end of last year, has expressed his interest in diversifying the business away from core pharmaceutical products and stressed a large capacity to fund deals, suggesting an appetite to strengthen the French group’s position in animal health. . . .

That last bit might imply that Sanofi, alone, or with other backing, would buy the whole of all the Animal Health franchises, outright -- then carve them up, in some fashion. If sold, the aggregated Animal Health franchises would greatly reduce New Merck's (and to be clear -- "New Merck" is a far more accurate descriptor for the Sch-Merck entity, than any name which would include the old "Schering-Plough" handle -- so I'll likely use "New Merck" to refer to the post-merged entity, from now on) debt load, post reverse-merger. They could be nearly completely-delevered, when compared to pre-merger levels.

In this market, that would allow New Merck to weather significant internal (i.e., FDA non-approvals and patent-cliffs), or external (i.e., reform-driven pricing pressures and/or any future overall-market calamaties and) challenges.

We'll see.


Anonymous said...

This is a great story that doesn't say anything, other than that a deal might be close. The story basically says that in order to get FTC approval, Merck will need to do a deal where it will either (1) sell Intervet/SP to Merial (or as much as they can), (2) sell Intervet/SP (in whole or as parts) to one or more third parties or (3) sell its interest in Merial. We already KNEW that. You posted as much last month.

Condor said...

Thanks -- I think the bit I'd like to highlight is that the Financial Times is continuing to posit, as an ONGOING "live" option, a scenario (sale of ALL) that Merck CEO Dick Clark has as much as said -- in SEC filings, no less -- "won't happen".

I think CEOs Hassan and Clark would sell their own mothers -- if the price were fat enough -- so I do tend to think FT may have that part pretty well-sourced.

Do stop back -- Namaste!

Anonymous said...

Certainly agree on Dick and Fred. A poster on another board had a good point, though. The article says that the impending deal could result in $4B. A complete sell of of animal health should result in a much higher number. That's not to say that Merck might completely divest AH down the road, but a $4B deal points to something less than that at the present time. I wish I could have been a fly on the wall at some of the off-site meetings last week (that everyone knew were going on -- a terribly kept secret).

Condor said...

I think the $4 billion refers to just the Merck/Merial portion.

I agree, the Intervet Plus Merial deal would be at a much, much higher number -- perhaps double.

Thus my comment about "insta-post-merger-delevering".


Anonymous said...

The FT article has been updated -- the only change appears to be that "$4B" has been replaced by "$10B". That WOULD be about the right value for a sale of Merck's stake in Merial, combined with a sell-off of Intervet/Schering-Plough Animal Health. Hmmmmm.

Condor said...

Sure enough -- noted, now above.


Condor said...

Thanks so much -- for the scoop, here -- oh, anonymous commenter!

I've made your find the subject of an all-new post, above.

Truly fascinating -- is this a harbinger of an all-out exit -- by New Merck, from all the Schering-Plough (and Merial) AH business lines, worldwide?

We'll have to wait and see, but it surely would make for an easy path to "de-levering the post-merger balance sheet" -- and thus potentially juicing the income line (to offset, in part, the likely loss of at least some of the Remicade/Simponi net income, in the J&J arbitration).


Anonymous said...

yoo... thanks for :))