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.)