DEALTALK-Sanofi, Merck gear up for animal-health sell-off

(For more Reuters Dealtalk, click on [DEALTALK/])

* Sources say Sanofi and Merck soon to pick banks for sale

* Vetnosis sees overlaps in vaccines and parasiticides

* Vetnosis says businesses with $450-650 mln in sales may go

By Quentin Webb

LONDON, May 13 (Reuters) - Sanofi-Aventis SASY.PA and Merck & Co MRK.N are gearing up to sell parts of the world's largest veterinary drugs operation, offering smaller players in the $19-billion animal health industry a last clear chance to bulk up.

Merck’s $46-billion merger with Schering-Plough last year gave it the latter’s Intervet/Schering Plough Animal Health business, which it is now combining with Sanofi’s Merial in a joint venture with $5.3 billion in sales.

As part of that process, the two drugmakers are now looking to shed assets worth several hundreds of millions of dollars, as they await regulatory approval for creating a group that would hold 29 percent of the global animal health market.

People familiar with the matter say Sanofi and Merck met investment banks recently and are likely to name advisers around the end of May.

It is not clear if the duo hope to achieve a single sale or will settle for a series of smaller deals.

Vetnosis, a consultancy, says the U.S.-French duo may have to divest businesses accounting for about 9 to 12 percent of annual sales, or some $450 to $650 million, to cut overlaps and placate competition watchdogs.

“This is the final major transaction within the restructuring of the animal health industry,” Vetnosis Managing Director Tim Evans said in an email.

“It is also the last opportunity for players wishing to scale up through the acquisition of major brands with strong market positions and the final chance to attain a competitive position in the important veterinary vaccines category.”

Merial, whose top product is Frontline, a flea and tick treatment for cats and dogs, is strongest in pet treatments, while ISP is more focused on livestock.

Vetnosis points to overlaps in vaccines for livestock, poultry, pets, and horses; in products to kill parasites; and in specialty veterinary products, such as drugs to treat cardiovascular disorders.

It will not forecast a deal value but says two earlier deals involving Merck and Merial were struck at a valuation of about 3 times 2008 sales.

In March Richard Clark, chairman and chief executive of Merck, said Intervet/Schering-Plough traditionally had operating margins in the “low 20s” as a percentage of sales, but he was optimistic synergies and revenue benefits from combining with Merial would have a “positive impact”.


Merial was originally also a joint venture between the two companies, but Merck put its half up for sale last year to speed the completion of the main Schering-Plough deal. Several major rivals showed interest in parts of the business.

Merck eventually sold its share back to Sanofi, but Eli Lilly LLY.N, Bayer BAYGn.DE and Novartis NOVN.VX were among other bidders for the stake, sources familiar with the matter said at the time. In March, sources said Bayer remained eager to boost its animal-health business. [ID:nLDE62M118]

The trio hold third, fourth and fifth place by sales in the global market, behind Merck-Sanofi and Pfizer, according to Vetnosis, which forecasts the industry will enjoy 5 percent nominal annual growth between now and 2014.

Other smaller players that could be interested include King Pharmaceuticals' KG.N Alpharma, Phibro PAHC.L and Virbac VIRB.PA.

The drug industry's other 2009 mega-merger, Pfizer-Wyeth PFE.N, also re-shaped animal health, creating a firm with a fifth of the global market.

Pfizer later sold some veterinary assets to Boehringer Ingelheim, the family-owned German company that is the world’s biggest unlisted drugmaker, to win antitrust approval.

Sanofi said “the process is ongoing” but declined to comment in more detail. Merck declined to comment. (Additional reporting by Caroline Jacobs in Paris and Lewis Krauskopf in New York; Editing by Sitaraman Shankar)