I think the 100 day call option in favor of Sanofi-Aventis will expire mid-next week. One of my commenters thinks expiry day is Monday, February 8, 2010. I make it to be Wednesday, February 10, 2010.
Either way, with Sanofi's CEO previously saying it was "likely" to exercise the option, the perhaps $8.8 billion deal could come to pass (after it clears a veritable maze of intertwined antitrust authorities' desks, in Europe, the US, Canada and Australia, among others). If it goes forward, it will change the landscape of animal health delivery in many fundamental ways -- as it creates a truly global Goliath.
This is a deal in which the legacy Schering-Plough/Intervet animal health assets (say $4.2 billion, or so) would be contributed to a newly reformed joint venture 
between New Merck and Sanofi, and the New Merial animal health assets (presently solely owned by Sanofi -- call those about $4.5 billion), which include old legacy Merck's animal health assets -- all get rolled up into a ball, and a new global juggernaut would begin business, and (if untouched) possibly dominate, in many smaller European markets. Got all that? Good. But it all evaporates into a Brigadoon-like mist, if Sanofi decides not to exercise its call option by mid-next week (or so).
My bet is that the exercise notice will come on the last hour of the last day it is still permissable to deliver it, into Whitehouse Station. The call option specifies "prior to 5 pm New York time," on that day. We'll let you know, up or down.
Note however, that the FTC had some grave concerns about this possibility, back when it was reviewing the Merck bust-up of Schering-Plough:
. . . .At the time the parties entered into an agreement to divest Merck’s shares in Merial to Sanofi-Aventis, they also entered into a call option agreement (“Call Option”) granting Sanofi-Aventis the right to combine the animal health businesses of Merial and Schering-Plough after the Acquisition is consummated and to recreate the 50/50 joint venture between Merck and Sanofi-Aventis. The effect of the Call Option, if exercised, would be to reverse the animal health remedy required by the Order. Consistent with Commission policy, the Order contains a prior approval provision to address the credible risk (here, the high likelihood) that the combined Merck/Schering-Plough and Sanofi-Aventis would combine their animal health businesses after the divestiture. The call option was entered into with the expectation that it is likely to be exercised, and the firms have publicly identified the advantages of such a combination. As a result, Merck is prohibited from acquiring any of Merial’s animal health assets, or in any way combining the animal health businesses of Merck and Sanofi-Aventis without the prior approval of the Commission. . .
In any event, here's a slide on it all, from July 30, 2009:
That's slang for down-sizing the newly-combined employee population. Stay tuned.
9 comments:
What are the chances of Sanofi and Merck getting approval for something like this? Would they have to divest additional animal business units?
What other Schering businesses will Merck bust up? Organon divisions, Consumer?
This really turns on how quickly FTC and DoJ are able to put boots on the ground (the agencies are hiring new lawyers and analysts, to keep a closer eye on pharma). I think the EU Commission will require several large divestitures, in several markets, before it would clear this deal.
If you search "Intervet" or "Merial" on this site (upper right hand search box), you'll see at least eight posts I wrote last summer that point to highly concentrated animal health markets if Merck, Intervet and New Merial are combined.
These moves leave Fort Dodge, and Pfizer (in some markets) as smaller, weaker competitors. And no competitor in some markets -- a pure monopoly.
Still, I think some form of the deal will get done. It may be 2012 before it closes, and clears US authorities, though.
As to other business New Merck might "bust-up", or partner off -- Merck has suggested openly that legacy Schering-Plough's Consumer Health is one unit to look closely at -- it will require much capital, and soon.
I think something is going to happen with respect to the Simponi/Remicade franchise, as well (call it $4 to $6 billion). If J&J's Centocor unit wins the arbitration, Merck is likely to sell off whatever remains, or try to cut a deal (maybe even with Centocor) to keep some part of that non-US revenue stream.
As ever, we shall see -- but most of all, I feel for the people whose jobs and lives hang in the balance. It din't have to be this way.
BTW, great questions!
Namaste
I believe it was 10 BUSINESS days following the closing for the first step, then 90 CALENDAR days for due diligence. By my math that's around Feb. 17
Could be. But it might also make sense -- from Sanofi's perspective -- to announce its intentions in conjunction with its earnings conference call, on Wednesday, February 10, 2010.
That would still be inside both of our projected call option expiry windows. We shall see.
Namaste -- and thanks for the insights!
could be as late as March 17 before we find out.
Well, nobody's been right yet. March 17 is the only guess left on the table -- what's that based on, an extension of the option?
Because the SEC Form 8-K Merck filed today refers to the amendment to the Call Option Agreement as "Amendment No. 4", it would seem likely that three prior amendments were made to the Call Option Agreement. I'd be willing to wager that one or two of those were to acheive a "tolling" of the 100 days, while these EU Works Councils matters were being sorted out.
So -- I think we had the ORIGINAL count right -- but none of the parties were required to disclose these tolling amendments, for what it is worth (not much).
Namaste
Was 2010 really the last time you posted something about animal health?
We are still part of Merck as MAH and although there may be nothing exciting about the animal health products, I consider the shark pool in our upper management worth a look. Some old SP networks are still very active - not always in a positive way.
Thanks, anon.!
I've been comparing Merck Animal Health to Zoetis, the Pfizer spin-off, here in 2013.
I've also mentioned the S-P legacy of "sharks-pooling" here, in the layoffs context, in early 2012.
But yours is a good reminder, to talk about whether (and when) Merck next highlights its animal health offerings -- as it last did in early 2012.
Do stop back, and do try the sort by date function -- after you run the serach function. It is right below the top line -- and the default sorts by relevancy -- so you need to sort by date.
Namaste!
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