Sanofi, Boehringer to create new animal health giant in $12.5B asset swap

After months of speculation about Sanofi's ($SNY) future in animal health, the French company confirmed on Tuesday that it is in negotiations to exit the industry via a $12.5 billion asset swap with Germany's closely held pharma company Boehringer Ingelheim. Sanofi would trade its animal health unit, Merial, for BI's consumer health business. The proposed deal would make BI's Vetmedica unit the second-largest animal health company behind Zoetis ($ZTS), with total estimated 2015 sales of €3.8 billion ($4.2 billion), according to a press release from the companies.

Sanofi, which has undergone a major restructuring under CEO Olivier Brandicourt, has been working to boost its presence in key markets, including consumer healthcare. In the transaction, Sanofi will gain BI's consumer business (minus China), which has an enterprise value of €6.7 billion ($7.4 billion), the companies said. That will propel Sanofi into the number-one spot in consumer healthcare. BI is also giving Sanofi a cash payout of €4.7 billion ($5.2 billion).

Merial, valued at €11.4 billion ($12.5 billion), will greatly expand BI's global presence in animal health, adding 13 research facilities, 18 manufacturing plants and a suite of products that will boost its profile in segments of the industry where it was a virtual unknown before. Merial is one of the biggest marketers of vaccines and treatments for the fast-growing companion animal market, including Heartgard for preventing heartworms in dogs, Purevax feline vaccines, and NexGard, a chewable flea-and-tick fighter for dogs that has been in hot demand since it was launched last year. After the deal, BI will shoot from 7th place in the small animal market to first place, the companies estimate.

The deal will also give BI the top spot in swine health, boosting its portfolio of vaccines such as Ingelvac Circoflex and Ingelvac PRRS. And Merial will provide BI with an entry into the equine market, where it previously had no presence.

"Boehringer Ingelheim's strategic priority is to focus on the company's core areas of expertise and businesses with an established global scale, or where a pathway to a global scale can be achieved and prioritized among Boehringer Ingelheim's portfolio opportunities," said Andreas Barner, chairman of BI's board, in the release. "Our combined Animal Health business would be well positioned for growth and emergence as a leader globally."

The path forward for Merial had been in question since September, when rumors that Brandicourt was considering a spinoff emerged. The issue was less about the unit's performance--in the third quarter, Merial's sales grew 9% year-over-year to €607 million ($668.8 million)--and more about Brandicourt's desire to cut costs, turn around Sanofi's struggling diabetes business and bolster the company's other pursuits in human health. In late November, Sanofi hired investment banking giant Lazard to weigh options for Merial.

The asset swap is expected to close in the fourth quarter of 2016, pending regulatory approvals, BI and Sanofi said in the release. BI said it is committed to maintaining Merial's operations, R&D and manufacturing facilities in France and that it "would pay particular attention to sustain the momentum of the U.S. operations," in light of the importance of the American market to Merial's business.

- get more at FiercePharma
- here's the press release
- read more at the Financial Times (sub. req.)

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