Sources: Bayer and others are kicking the tires on Novartis' animal health business

Only a few weeks ago, word emerged that Novartis ($NVS) was weighing a sale or spinoff of its animal health unit as part of a larger strategy by incoming chairman Joerg Reinhardt to refocus the company. Novartis is wasting no time in getting it prepped for sale. Sources tell Reuters the Swiss drug giant is allowing Bayer and other companies to perform due diligence on the veterinary-products business, a unit that delivers roughly $1.1 billion in sales annually.

Bayer records about $1.7 billion in veterinary sales each year, and uniting with Novartis' animal health business would make the German company the third or fourth largest player in the market, Reuters estimates. The top spot belongs to Pfizer ($PFE) spinoff Zoetis ($ZTS), which hauled in $2.2 billion in its February initial public offering.

Novartis has moved quickly to overhaul its strategy ever since Reinhardt took over from departing chairman Daniel Vasella earlier this year. In November, the company said it would sell its blood-transfusion business to Spain's Grifols SA for $1.7 billion. Then it announced a $5 billion stock buyback--a classic move to appease shareholders--and revealed plans to form new businesses focused on dermatology, heart failure, respiratory diseases and cell therapy. Analysts speculate Novartis may also be eyeing its consumer and vaccine units as possible spinoffs.

As for Bayer, CEO Marijn Dekkers declined to comment on his company's interest in Novartis' veterinary business at a Reuters conference on Tuesday, saying only that it was committed to expanding its presence in animal health. The company bought Teva Pharmaceutical Industries' ($TEVA) animal health unit for $145 million last year.

So which drug giant will be next to join the parade of companies slimming down and simultaneously profiting from the burgeoning veterinary market? All eyes are on Merck ($MRK), which acknowledged in early November it was assessing the future of its animal health unit.

- read the Reuters story