One Animal of an M&A Deal

The animal-health business is like a pony ride; the players just keep going around and around. Merck (NYSE: MRK  ) and sanofi-aventis (NYSE: SNY  ) are the latest to make the rounds. The only question is how much baggage the antitrust regulators will make them shed.

The two used to be partners in a joint venture called Merial, but Merck sold its half to sanofi in order to buy Schering-Plough, which came with an animal-health business of its own, called Intervet. That was confusing enough.

Now, however, Sanofi is taking Merck back, remaking their 50/50 joint venture. Was it puppy love that brought the two back together? No, it seems this is simply a matter of scale; joining Merial and Intervet will help cut costs on both sides.

Because Intervet is more valuable, Sanofi will pay Merck $250 million to re-establish the joint venture on top of the $750 million it agreed to when this game of musical chairs was originally set up. The new joint venture will have 29% of the animal-health market, surpassing Pfizer's (NYSE: PFE  ) 20%.

That's before antitrust regulators get their hands on it, of course. Merial and Intervet don't have much overlap; most of Merial's sales come from companion animals -- it sells Frontline flea and tick treatment, for instance -- while Intervet is more into selling products for livestock. Still, there will be some overlap that's likely to have antitrust regulators whipping out their red pens.

Forced sales, especially when the buyer knows you've got to sell, aren't the best way to get the highest value for your assets. But there's plenty of competition among other pharmaceutical companies -- Bayer, Novartis (NYSE: NVS  ) , Eli Lilly (NYSE: LLY  ) , and others all have animal-health divisions -- so Merck and Sanofi probably won't have to offload assets at fire-sale prices.

The potential for blockbusters in animal-health products isn't as high as in their human counterparts, of course, but the diversification offers a bit of stability for drugmakers. For investors, they provide a little exposure to agriculture and the increasing need for food for a growing population without buying a strictly ag-facing company like Monsanto (NYSE: MON  ) or PotashCorp (NYSE: POT  ) .

Overall, investors should be happy with the lovebirds.

Monsanto and Pfizer are Motley Fool Inside Valueselections. The Inside Value team searches high and low to bring you the best value stocks available. Check the service out for free with a 30-day trial

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Novartis is a Global Gains pick. If the Fool's disclosure policy were an animal, it would be a mother bear watching over you, its little cub.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1133036, ~/Articles/ArticleHandler.aspx, 11/24/2014 3:24:37 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement