Merck & Co. is selling its 50-percent stake in Merial to Sanofi-Aventis SA for $4 billion in cash.
But a side deal between the two companies could create the world's largest pharmaceutical player in animal health by early 2010.
If approved by European antitrust authorities, the French drug maker's purchase will give Sanofi 100-percent ownership of Merial, maker of an array of core pharmaceuticals and vaccines for pets and livestock. The two companies — Merck and Sanofi — have worked together since 1997, turning Merial into a business that employs 5,400 people and earned $2.6 billion last year.
New Jersey-based Merck created Merial by merging its animal-health branch in with a division of Rhone Merieux, which was acquired by Sanofi.
If things go as planned for the pharmaceutical giants, Merck and Sanofi will once again join forces, except this time they'll co-own a much larger animal-health venture. Here's how it could happen:
The sale of Merial to Sanofi is designed to assure antitrust regulatory approval of Merck's $41-billion cash and stock offer for U.S. rival Schering-Plough, which includes Intervet/Schering Plough Animal Health. Together, human and animal-health products from those companies accounted for a combined $46.9 billion in 2008 revenues, and it's been widely speculated that Merck's ownership of Schering's animal-health counterpart in addition to its co-ownership of Merial would present an antitrust obstacle.
"For sure you can't have 50-percent of the third-largest company in animal health (Merial) and 100-percent of the second-largest company (Intervet/Schering Plough Animal Health) join forces," says Jean-Marc Podvin, head of Sanofi's Media Relations. "Merial has to balance their portfolio and divest some assets."
Sanofi has roughly 100 days after the ink dries on Merck's acquisition of Schering Plough to exercise an option to unite Merial and Intervet for a new 50-50 co-owned venture. That buy could cost Sanofi $750 million extra, but in the process, it would birth a company with revenues estimated at $5.7 billion annually.
That tops the industry's current No. 1 player, Pfizer Animal Health, which reported $2.8 billion in sales last year. Coincidentally, news of the Merial sale follows the $68-billion deal forged by Pfizer's purchase of Wyeth earlier this year. Both drug makers have major animal-health components, including Wyeth's Fort Dodge Animal Health, which sold $1 billion in animal-health products worldwide, and Pfizer Animal Health.
Of course, a lot has to happen before the world's largest drug company serving veterinary medicine is created.
"I can't speculate (about what will happen) beyond what's been reported," says Steve Dickinson, Merial corporate communications. "I can tell you that it's business as usual for Merial. Nothing is changing for us. Our product line, sales force, commitments — everything stays the same for us."
That's likely to matter to a profession seeing a surge in drug company consolidations.
"There's a lot we don't know yet," says Dr. Emily Graves, a Colorado equine practitioner and Veterinary Information Network member. "It scares me a little bit that there's potentially less competition down the road, and we might lose some products that we like."
On Wednesday, Sanofi-Aventis released its latest financial statement, showing that second quarter profits increased nearly 5 percent, to total $1.5 billion. In Sanofi-Aventis' report
, Chief Executive Officer Christopher A. Viehbacher acknowledged that to become a "leading diversified global healthcare company," success lies, at least partially, in acquisitions.