Who's in the animal-health catbird seat?

Who's holding the cards in the game for those coveted animal health assets Merck and Schering-Plough are planning to divest? Hint: It's not Merck or Schering. It's Sanofi-Aventis, which is Merck's joint venture partner in Merial. "Sanofi holds the upper hand," a source close to the talks told Reuters. "They are playing it smart and keeping their cards close to the vest but it all depends on what they decide."

That's because Merck would find it easiest to sell Merial to Sanofi, due to the existing joint venture. The only way another company could get ahold of Merck's Merial stake would be if a.) Sanofi walks, or b.) another company decides to "substantially overpay," Reuters reports.

Or, of course, if Merck decided to sell Schering's larger Intervet business instead. The way the companies have structured a potential sale is this: They've been taking bids for the Merial stake and for Intervet, and will only decide which--if any--to sell after reviewing those bids. But Intervet didn't attract many initial offers by the July 15 deadline, because bidders think that Merck and Schering will decide to keep that unit and sell the Merial stake, the sources told Reuters.

So why the fuss over animal health all of a sudden? Partly because of these assets--and some Pfizer animal health assets--becoming available as a result of this year's megamergers. But partly because animal health is seen as a smart diversification tactic. "Animal health is a much steadier business than the human pharmaceuticals business these days," David Moskowitz, an analyst with Caris & Co., told Bloomberg. "Animal products tend to have very nice margins, there's much lower threat of generic competition, and there's a lot of brand loyalty."

- read the Reuters piece
- see the story from Bloomberg

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