FOCUS: Bayer Seen Eyeing Possible Animal Health Synergies
July 08 2009 - 12:58PM
Dow Jones News
Two mega mergers among U.S. pharmaceutical companies may offer
potentially lucrative opportunities in the animal health sector for
German pharmaceutical and chemicals company Bayer AG (BAY.XE),
analysts say.
Bayer could even get a bargain, analysts point out, because the
U.S. companies are eager to sell the assets to avoid antitrust
issues. However, tight credit markets may prevent the company from
financing a large acquisition, so analysts say Bayer may have to
settle for smaller - but still attractive - synergies.
Merck & Co. (MRK) has said it may divest its interest in the
Merial animal science joint venture that it has with French concern
Sanofi-Aventis (SNY) as part of Merck's $41.1 billion merger with
Schering-Plough (SGP). Last year Merial, established in 1997,
posted $2.6 billion in sales.
Schering-Plough also has a sizeable animal health business,
which earned it $3 billion in sales last year, mostly from its
Dutch animal business Intervet, which contributed $1.9 billion of
that. The U.S. Federal Trade Commission, the antitrust regulator,
has made inquiries about Merck and Schering-Plough's combined
assets in the animal health business and a Merck spokeswoman said
the company is evaluating its options for Merial and Intervet,
including divestment. She gave no other details.
Pfizer (PFE) also may be planning to sell its animal business as
part of its $68 billion merger with Wyeth (WYE), which owns Fort
Dodge Animal Health. Pfizer has said it may have to divest some of
its animal business to appease antitrust regulators.
The U.S.-based companies declined to comment on the possibility
of Bayer being a buyer.
Bayer Chief Executive Werner Wenning said at a recent analyst
conference that he was interested in expanding the German company's
animal health portfolio. Bayer's animal health business, which
Bayer says is the fourth-largest in the world, earned EUR963
million in sales last year.
Financial Times Deutschland reported Tuesday that Bayer is in
talks to acquire an animal health business, citing company and
financial sources. Bayer declined to comment on the report.
Previously, the company has said it is not planning any large
acquisitions this year due to turmoil financial markets and limited
sources of liquidity.
The animal health market offers strong earnings potential, said
LBBW analyst Karl-Heinz Scheunemann. Unlike the traditional
pharmaceutical industry, animal health products are not regulated
in terms of price, he said.
Scheunemann said there are several opportunities for Bayer, but
tight capital markets may make a total takeover difficult. He said
Bayer is more likely to acquire a product line or specialty area
such as vaccines.
That's what makes Schering-Plough's vaccine company Intervet
particularly attractive, say UniCredit analyst Andreas Heine and
Sal. Oppenheim analyst Christian Faitz. However, they say
Intervet's price tag, which the Wall Street Journal estimates at
between $6 billion and $8 billion, would mean Bayer would have to
make a capital hike to pay for it.
Bayer also may face competing bids from other interested
parties.
Eli Lilly & Co. (LLY) CEO John Lechleiter told Dow Jones in
late May that the company is interested in expanding its
animal-health business through acquisitions, potentially including
any assets that may have to be divested as a result of the
Pfizer-Wyeth and Merck/Schering-Plough deals.
Privately-held Boehringer Ingelheim of Germany, Switzerland's
Novartis (NVS) and French drug maker Sanofi-Aventis have also been
reported to be interested in animal health assets up for sale. The
three European drug companies declined to comment.
-By Natali Schwab, Frankfurt Bureau; +49 69 29725500,
natali.schwab@dowjones.com (Allison Connolly in Frankfurt and Peter
Loftus in Philadelphia contributed to this report.)