Merck, Sanofi Abandon Animal Health Deal on Regulatory Snags
Merck, Sanofi Abandon Plan to Combine Animal Health Units
Paul Hackett/Bloomberg
A dog owner applies Merial's Frontline, a treatment for cats and dogs, to her pet cocker spaniel in London.
A dog owner applies Merial's Frontline, a treatment for cats and dogs, to her pet cocker spaniel in London. Photographer: Paul Hackett/Bloomberg
Merck & Co. and Sanofi-Aventis SA (SAN) abandoned plans to combine their animal-health businesses after wrestling with competition regulators for a year over potential divestitures.
The companies will now keep the Intervet and Merial units separate at no penalty to either side, they said in a statement today. Merck, based in Whitehouse Station, New Jersey, and Paris-based Sanofi remain committed to animal health, they said.
The decision ends a plan to create the world’s biggest maker of medicines for livestock and pets as Merck and Sanofi sought stable sources of revenue growth. The drugmakers were to have been equal owners of the joint venture announced on March 9, 2010. The units had combined sales of $5.5 billion last year.
“It was clear from the beginning that there would be problems from the regulatory side,” said Oliver Kaemmerer, an analyst with WestLB AG in London. Kaemmerer said he believes Merck and Sanofi when they say they won’t sell their animal- health assets, but “never say never.”
Merial’s products include a bird-flu vaccine for poultry and Frontline, the best-selling flea spray for pets, while Intervet makes a device to vaccinate pigs without a needle and the Safe-Guard treatment to deworm dogs.
Farm Animals, Pets
“The companies are discontinuing their agreement primarily because of the increasing complexity of implementing the proposed transaction, both in terms of the nature and extent of the anticipated divestitures and the length of time necessary for the worldwide regulatory review process,” Merck and Sanofi said in the statement.
Sanofi fell 34 cents, or 0.7 percent, to close at 47.66 euros in Paris trading. Merck rose 13 cents, or 0.4, percent to $32.52 at 1:15 p.m. in New York Stock Exchange composite trading.
The two companies had hired Morgan Stanley to arrange the sale of assets valued at about $1 billion to resolve antitrust concerns, two people with knowledge of the matter said in October. Prospective buyers may have included Pfizer Inc. (PFE), Bayer AG, Boehringer Ingelheim GmbH, Eli Lilly & Co. (LLY) and Novartis AG (NOVN), said the people. Potential buyers showed a lot of interest in the assets, Sanofi Chief Executive Officer Chris Viehbacher said on a Feb. 9 conference call.
New Partnership
Sanofi and Merck operated Merial as a joint venture for more than a decade. Sanofi bought out its partner’s stake for $4 billion in 2009, removing an antitrust obstacle to Merck’s acquisition of Schering-Plough Corp.
Merck and Sanofi agreed a year ago form a new partnership that combined Merial and the Intervet veterinary unit that Merck got in the Schering-Plough purchase.
Viehbacher sought to expand in veterinary products in part because the business wasn’t as vulnerable as prescription drugs to competition from generic products. Growing demand for food also helped lift sales of products for farm animals, and rising incomes were leading to increased pet ownership, he said.
“This is one of those sweet spots that provide sustainability of sales and earnings growth,” Viehbacher said on the Feb. 9 call.
Both companies remain committed to their animal-health businesses, Merck and Sanofi said in the joint statement.
Now that Merial will remain wholly owned, its accounting treatment will change, Sanofi said. Depreciation of the unit’s plant, property and equipment and amortization of its intangible assets will be included in Sanofi’s income statement, the company said in a separate statement. Had those items been included in earnings last year, Sanofi’s net income would have been 240 million euros lower, the company said.
To contact the reporter on this story: Eva von Schaper in Munich at evonschaper@bloomberg.net.
To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net
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