Report: Sanofi cooking up $12.7B animal health spinoff

Olivier Brandicourt

Just two weeks after Sanofi ($SNY) CEO Olivier Brandicourt acknowledged during an investor meeting that he was considering spinning off the company's animal-health unit, Merial, reports emerged on Nov. 27 that the French pharmaceutical giant has hired investment bank Lazard to look into a transaction.

The value of the deal could be as much as $12.7 billion, according to anonymous sources who spoke to Reuters. The company could opt for either a sale or initial public offering, though the former could be challenging in light of antitrust concerns, the sources said. Sanofi and Lazard declined to comment, Reuters reports.

Merial has been a reliable workhorse for Sanofi, which has been struggling to turn around its stagnating diabetes unit. In the most recent quarter, Merial charted 9% year-over-year sales growth to €607 million ($668.8 million), much of which came from its companion-animal business. Strong demand for NexGard, its new chewable flea-and-tick preventer, was behind the growth.

Under the tutelage of Carsten Hellmann, Merial has been boosting its presence in both the companion-animal and food-production markets. It has emerged as a leading force in an international effort to eliminate rabies, for example. And it has pioneered several innovative technologies for improving vaccines, including Avinew Neo, an effervescent tablet that's used for preventing the poultry illness Newcastle disease.

But Brandicourt, who took over as Sanofi's CEO in April, has said that Merial offers limited synergies with the company's other pursuits. What's more, he's trying to cut costs by €1.5 billion ($1.6 billion) by 2018 and he needs capital to fund acquisitions that would boost Sanofi's human-health endeavors.

If anyone is qualified to figure out the best path forward for Merial, it would be Brandicourt. Before joining Sanofi, he worked at Pfizer ($PFE), where he was part of the team that spun off Zoetis ($ZTS) in 2013 and raised $2.2 billion in an IPO. Zoetis has a market value of $23 billion today.

- here's the Reuters story

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