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Sanofi-aventis and Merck to create a new animal health JV

Sanofi-aventis exercises its option to combine Merial with Intervet/Schering-Plough in a new equally-owned joint venture with Merck.

Sanofi-aventis and Merck & Co., Inc. announced today that sanofi-aventis has exercised its option to combine Merial with Intervet/Schering-Plough, Merck’s Animal Health business, to create a new global in animal health company.
 
The new joint venture will be equally-owned by Merck and sanofi-aventis. The completion of the transaction is expected to occur in approximately the next 12 months following execution of final agreements, antitrust reviews and other customary closing conditions.
 
Product divestments
According to analysts the new JV probably will have to divest some products to satisfy government antitrust regulators.
 
There are “areas of overlap” among the two companies’ products, primarily in cattle and poultry vaccines, said John Volk, senior consultant with Brakke Consulting, Inc., a Dallas, Tex.-based firm that serves the animal health industry. There will be “some weeding out” in those two categories, he commented to Drovers.
 
“Cattle and poultry vaccines are probably the biggest areas where they’ll have to do divestitures,” Volk said, referring to Merck and Sanofi. “Regulators will look most closely at whether the combined companies will have an overly dominant position in any one category.”
 
Merck’s Intervet animal health unit and its Sanofi counterpart, Merial, have little overlap in swine products.
 
Global No. 1 position
The Intervet-Merial joint venture would have over 25% of the global animal health market, which generated $18.5 billion in revenue last year. Current leader Pfizer Inc. has around 15% of the global market.
 
“The upcoming combination of Merial and Intervet/Schering-Plough is an exciting opportunity for sanofi-aventis to create with Merck a leading company in the animal health strategic and growing sector”, said Christopher A. Viehbacher, Chief Executive Officer of sanofi-aventis.
 
“I am convinced that, together, we will create strong value in bringing broader and improved offerings in both pet and production animal segments.”
 
“Merck has been in the animal health business for well over six decades and through this new joint venture, we will bolster our diverse portfolio and create a new global competitor poised for growth,” said Richard T. Clark, Merck Chairman, President and Chief Executive Officer.
 
“This new joint venture delivers on Merck's commitment to customer focus by creating one of the broadest portfolios of animal health products and services […]. The planned joint venture will have an attractive geographical network of global technology and expertise to provide health solutions based on customers' needs, which often vary regionally.”
 
Enterprise value
The entreprise value of Merial has been fixed at $8 billion and the entreprise value of Intervet/Schering-Plough at $8.5 billion, leading to a true-up payment of $ 250 million to Merck to establish a 50/50 joint venture.
 
An additional amount of $750 million will be paid by sanofi-aventis, as per the terms of the agreement signed on July 29, 2009.
 
5% market growth
The worldwide animal health market reached almost $19 billion in 2008. Products for companion animals accounted for 40% of total sales while products for production animals accounted for the remaining 60% of total sales.
 
This market is expected to grow at around 5% per year over the next 5 years, driven by a growing demand for animal proteins, as well as a strong consumer needs for companion animal health care.
 
The companies said that both Merial and Intervet/Schering-Plough will continue to operate independently until the closing of the transaction.
 
About the partners
Sanofi-aventis, a global pharmaceutical company, discovers, develops and distributes therapeutic solutions to improve the lives of everyone. Sanofi-aventis is listed in Paris and in New York.
 
Intervet/Schering-Plough Animal Health, based in Boxmeer, the Netherlands, is focused on the research, development, manufacturing and marketing of animal health products.
 
The company offers customers a broad, innovative animal health portfolio, spanning products to support performance and to prevent, treat and control disease in all major farm and companion animal species.
 
Intervet/Schering-Plough Animal Health is a fully owned business unit of Merck & Co., Inc., based in Whitehouse Station NJ, USA.
 
Merial is a global, innovation-driven animal health company, providing a comprehensive range of products to enhance the health, well-being and performance of a wide range of animals.
 
The company employs approximately 5,700 people and operates in more than 150 countries worldwide. Formed in 1997, Merial was a 50/50 joint venture between Merck and sanofi-aventis and is now a wholly-owned subsidiary of sanofi-aventis, after Sanofi-aventis acquired Merck’s interest in Merial for a cash consideration of $4 billion (US) in 2009.
 
 

Dick Ziggers

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