| FRANKFURT, March 8
FRANKFURT, March 8 Bayer AG is
sounding out its debt financing options with banks to prepare
for takeover opportunities such as one that may arise from
Pfizer Inc's mooted exit from veterinary medicine,
people familiar with the matter said.
Germany's largest drugmaker is encouraged by increasingly
favourable market conditions for corporate bond issuers but is
not eyeing a specific takeover deal, the sources said.
"Bayer is talking to bankers to see if the company can
secure financing if there is a big takeover option," one of the
New corporate bond issuance in the first two months of 2012
made the strongest start to a year since 2010, as borrowing
costs drop on better economic news from the United States and
Europe, Standard & Poor's said earlier this month.
Market participants say German corporate bond markets have
had a particularly strong run in recent weeks.
Bayer's finance chief said last month he aimed to cut the
group's debt by about 1 billion euros ($1.3 billion) to 6
billion euros this year to gain flexibility as it scans the
market for takeover targets.
A Bayer spokesman said on Thursday the company never
commented on market rumours.
According to news reports on Wednesday, Bayer and Novartis
AG are in various stages of bidding for Pfizer's
Bloomberg reported Bayer is weighing a bid for the unit and
discussing how to raise funding with banks, while The Wall
Street Journal cited people familiar with the matter as saying
Novartis had recently made an approach to buy the business,
which, if sold, could fetch between $15 billion and $20 billion.
The preliminary offer made by Novartis is valued at as much
as $16 billion, according to the WSJ, but this was rebuffed as
too low, the paper said.
Despite the takeover interest, Pfizer may still be leaning
toward spinning off the animal-health division because of the
large tax bill, which one report said could reach $5 billion, as
well as the antitrust scrutiny that an outright sale would
Several bankers told Reuters Pfizer would likely prefer
offering all or a stake in the unit to its own shareholders
rather than selling it outright, mainly for a lower tax bill but
also because it would avoid any antitrust remedies.
"I hardly see why a buyer would want to compensate Pfizer on
the tax loss. $5 billion is huge," one of them said.
A Pfizer spokesman signaled that tax would be an issue.
"Our decision about strategic options will be driven by
value creation and delivering the best after-tax value for our
shareholders," he said.
He added that all options remained open, including a sale or
a spin-off. "We will be in a position to announce any decision
in 2012, and continue to expect to complete any transactions
that may result from this decision between July 2012 and July
As for Novartis, the idea of it splashing out $15-20 billion
on another acquisition so soon after buying U.S. eyecare group
Alcon for $51 billion in 2010 puzzled some analysts and bankers.
In addition, Chief Executive Joe Jimenez has said on a
number of recent occasions he was focused on bolt-on
acquisitions of around $1-2 billion.
One senior healthcare banker said Novartis's interest was
"purely a tactical move" aimed at pushing the price up and
making sure any competitor would need to pay a lot.
"It's difficult to understand Novartis doing it, given they
are still paying down Alcon," a healthcare analyst in London
Bayer has said repeatedly that in case of a larger takeover
it would exhaust all debt and equity financing options before
considering a sale of its MaterialScience unit, which is the
world's largest maker of plastics for car lights and sports
goggles and of chemicals for padding and insulation foam.
The global animal health sector is dominated by Pfizer,
Merck & Co Inc's Intervet unit, Sanofi SA's
Merial, Eli Lilly & Co's Elanco, Novartis, Bayer and
unlisted Boehringer Ingelheim.
The sector is attractive because it is driven by brand
loyalty and therefore higher margins. In addition, economic
growth in emerging economies leads to more meat consumption and
livestock farming and also to more money spent on pets.
Both the Novartis and Bayer businesses are small by
comparison with rivals and there has been speculation among
analysts that they might quit the sector if they could not find
the right assets to increase their footprint.
For the large players, meanwhile, antitrust issues would
rule out a move on Pfizer's operations. Sanofi CEO Chris
Viehbacher, for example, said this week he would "probably not"
be a bidder for Pfizer's animal-health business, in part because
of the regulatory issues.
Novartis was not immediately available for comment.