Tuesday, November 16, 2010

The Merck Divestiture Clock Is Ticking: Merial Animal Health Assets Edition

Last month, we mentioned press reports that purchase offer bids would be due about now, on the animal health "overlap" assets of Merial -- thought to be well over $1 billion in the aggregate. Antitrust regulators will require the divestiture of overlapping assets to prevent Merial from exercising monopoly power, in select animal health markets. Likely bidders on these assets include Abbott, Pfizer, Fort Dodge, Janssen, Lilly, BIVI and Bayer -- along with a host of regional players not as widely known as the multinationals.

More generally, it is expected that, without such divestitures, Merial would wield about 29 percent market share in the broadly defined global animal health space. That is prodigious -- and should be cause for concern. And so, we are now at the midpoint of the fourth quarter of 2010, and no filings with ECC or HSR authorities have been announced, thus I think it fair to suspect that the timeframes on both the divestiture-bidding process, and the overall Merial transactional processes, are beginning to stretch out.

Importantly (and unlike a "normal" HSR notification process), as a condition of "clearing" last year's Merck-Merial-Sanofi deal, FTC and DoJ retained the right to specifically approve (or withhold the same) -- as to any future Merial-Sanofi-Merck deal, like the one proposed, in the graphic at bottom right. I suspect FTC will require that the divestitures be substantially complete before it grants that explicit approval. Same way, in Europe -- would be my hunch.

In any event, here is a bit of the FTC/DoJ press release, from the end of October 2009:

. . . .The [FTC/DoJ] order also contains a “prior approval” provision designed to preserve the remedial benefits of the Merial animal health divestiture to Sanofi-Aventis, because there is a credible risk that Merck/Schering-Plough and Sanofi-Aventis would combine their animal health businesses after the divestiture. Therefore, the order prohibits Merck 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 Commission’s prior approval. . . .

We'll keep you informed.

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