Tuesday, September 22, 2009

When Is A Joint-Venture Termination Agreement. . . Not. Really. A. Termination?

. . . .When one gives a would-be terminating co-venturer a call option on a large chuck of the other's to-be-acquired businesses, that's when.

"This grand illusion brought to you by the good people at Merck -- who make chemicals that help people see things that aren't there -- and not see things. . . that are!":

Consider this -- from Section 5.7 of Exhibit 10.1 to the SEC Form 8-K Merck filed last night:

. . . .5.7 Post Contribution Revival

Notwithstanding Sections 5.5 and 5.6, from and after the closing of the transactions contemplated by the Contribution Agreement (as defined in the Call Option Agreement, dated as of July 29, 2009, among Schering-Plough, Merck and Sanofi-Aventis) or from and after any such time as Merck or Schering-Plough or any of their Affiliates, on the one hand, and Sanofi-Aventis or any of its Affiliates, on the other hand, consummate a joint venture, contribution, purchase or other transaction similar to that contemplated by the Contribution Agreement (the “JV Reconstitution”), each Human Health Utility Provision and Consultant Provision shall again apply to, and be binding upon, Merial (and its Subsidiaries) to the extent that such provision was binding upon Merial (and its Subsidiaries) prior to the date hereof. . . .

Wild. "Pay no attention to the un-divestiture behind the curtain.

Focus only upon the current termination/divestiture of our joint venture interest in Merial, to Sanofi. Your eyes are growing heavy. . . heavier. . . you are growing sleepy. . . sleepy. . . sleepier
. . ."

Come 2010: Presto-Change-o! You are now. . . reconstituted.

Again, this grand illusion brought to you by the good people at Merck -- making chemicals that help people see things that aren't there -- and not see things. . . that are.


Anonymous said...

Do I understand you correctly to say that you think Merial and Schering animal health businesses will be combined?

I just don't think this combination makes financial sense for Merck. If this combo happens, Merck will actually have less sales revenues than if Merck were to own just the schering animal health bussines. This is because of the extensive divestures which will surely be required and because of the $1 billion flea drug of Merial which will go off patent in 2011. Between these two events at least $ 1.5 billion of revenues will be lost!

Condor said...

Geat question, here Anon.!

Merck has already signed an agreement, that if and when it closes the main-acquisition/reverse merger of Schering-Plough, Sanofi Aventis (Sanofi, as of last Friday owns ALL of Merial, again!) will possess a "call right" through Merial, to pay a little over $9 billion and acquire all of "Old Schering's" Intervet Animal Health businesses.

This is a high-price, but it DOES take away Merck's CONTROL over the future of its combined animal health businesses. And it is already signed -- as of June 30, 2009.

So, yes I am saying that "New" Merck has ALREADY AGREED to sell (at a high price) all of the animal health businesses, formerly owned by "Old" Schering.

The next step after that deal, would be the shedding of all the overlapping lines in the relevant markets, to satisfy antitrust regulators in Europe and the US -- because the LAST STEP in this already-inked deal is that Merck then buys back into the Merial JV, which will THEN hold at least some of the Intervet assets, and most of its own original Merial JV assets.

Or so the theory CEO Clark espouses, goes.

Again, great question!

Do stop back.