MegaMergers Going to the Dogs

As if we needed another reason to dislike big pharma mergers. It looks like Merck (NYSE: MRK  ) isn't sure it'll be able to get its acquisition of Schering-Plough (NYSE: SGP  ) past regulators without doing a little trimming. According to The Wall Street Journal, the company is shopping its animal health division.

Merck owns Merial, maker of flea-and-tick controller Frontline and heartworm preventer Heartgard, in a joint venture with sanofi-aventis (NYSE: SNY  ) . Meanwhile, Schering-Plough also has a big interest in helping Fido and Bessy with its Intervet Schering-Plough Animal Health division. Merck hasn't decided which one it will sell -- or even if it has to -- but it's shopping them around to see what value they might be able to obtain. Word right now is roughly $6 billion or so each.

Merck's problems might not just be with regulators. Its partnership with sanofi-aventis appears to preclude it from competing outside the partnership, so it would probably have to sell off some of the assets even if the antitrust regulators didn't have a problem with the merger.

Schering's animal-health division is actually smaller than it could have been. It had to sell off some of its animal-health assets to Pfizer (NYSE: PFE  ) and France-based Virbac when it acquired the Organon BioSciences unit of Akzo Nobel.

Who's likely to pony up for the chance to help animals? Almost every pharmaceutical company has an animal health division, and many are trying to get larger. Eli Lilly (NYSE: LLY  ) , for instance, bought Monsanto's (NYSE: MON  ) Posilac cow hormone last year. The only companies that might be out of the running are Pfizer and Wyeth (NYSE: WYE  ) , which could potentially be in a similar situation of needing to divest some of their products to get past antitrust regulators. They also have animal health divisions.

Diversification is generally good for investors and companies. Unfortunately, Merck's acquisition isn't going to help it diversify much.