Novartis Said to Draw Interest for Vaccines Business

Novartis AG is drawing interest from potential bidders for its human-vaccines unit as talks to swap its animal-health business for assets from Merck & Co. slow down, people with knowledge of the matter said.

While the vaccines unit was initially on the table with animal health as part of the possible trade for Merck’s over-the-counter drugs business, Novartis may now sell vaccines separately, said three of the people, who asked not to be named because the process is private. The business could be valued at about $1 billion, one of the people said.

Novartis, Europe’s biggest drugmaker by sales, and Merck, the second-largest U.S. pharmaceuticals company, are continuing discussions about trading assets because both want to build existing businesses, the people said. Still, agreeing on valuation is proving difficult, so Novartis has informally talked to Eli Lilly & Co. and Bayer AG about their interest in the animal-health business even as it continues negotiations with Merck, the people said.

The potential sale of the vaccines unit is part of Chief Executive Officer Joe Jimenez’s efforts to revamp the Swiss drugmaker by focusing on core businesses. Last month it sold a blood diagnostics business to Spain’s Grifols SA for about $1.7 billion as part of a review of the company’s operations.

Novartis’s veterinary unit may be valued at about $4 billion including net debt, Citigroup Inc. analysts said in October. Novartis, based in Basel, Switzerland, doesn’t publicly report separate financial results for animal health.

Reckitt Interest

Merck meanwhile has received expressions of interest in its consumer unit from potential suitors waiting to see if it fails to reach an agreement with Novartis, the people said. The firm hasn’t actively been seeking other bidders, two of the people said. Merck said last month it will decide the future of its animal-health and consumer businesses this year.

Reckitt Benckiser Group Plc, which sells over-the-counter personal care products such as Clearasil acne treatment and Lanacane anti-itch cream, would be interested in Merck’s consumer drugs should Merck fail to reach a deal with Novartis, two of the people said.

Spokesmen for Novartis, Bayer and Reckitt declined to comment while representatives for Merck and Eli Lilly couldn’t be reached for comment.

Consumer Brands

Merck’s over-the-counter business, which includes Coppertone sunblock and Claritin allergy medicine, would complement Novartis’s consumer line-up of items such as Triaminic cold medicine and Lamisil anti-fungal treatment. Novartis would prefer to trade the veterinary unit because it doesn’t need cash and would rather invest in an area in which it is already a leader such as prescription drugs, people familiar with the matter have said.

Steve Scala, an analyst with Cowen & Co. in Boston, said in a December research report that trading the Novartis vaccines and animal-health businesses for Merck’s consumer business made sense. The two Novartis units are projected to post combined earnings before interest and taxes of $529 million in 2014, while Merck’s consumer business will have Ebit of $568 million, according to the report.

To make a swap work, Novartis could give Merck some cash, the people familiar with the situation said.

Before it's here, it's on the Bloomberg Terminal.