Will Zoetis stand alone when Big Pharma's music stops?

Bayer CEO Marijn Dekkers

After standing alone atop the animal health industry since being spun off by Pfizer ($PFE) last year, the question now circulating is if Zoetis ($ZTS) will be a target of Bayer now that the German pharmaceutical company's coffers look like they may become flush with cash.

That's if Bayer divests its plastics division via an initial public offering. A spinoff, Bayer's CFO Werner Baumann recently told reporters on a conference call, would mean shares instead of cash.

No sooner did news of Bayer's plans to shed its plastics division--reports speculate that the potential proceeds for the unit could reach up to €12 billion ($15.5 billion)--than analysts began speculating about whom the company could acquire. Zoetis has been at the forefront of that speculation and, according to Bloomberg, Bayer's CEO Marijn Dekkers said in the conference call that everyone should, "stay tuned on that."

Zoetis is currently the hands-down leader in the animal health field, reporting revenues of $4.56 billion in 2013. The current market cap for Zoetis is about $18 billion, according to Bloomberg. That's close enough for Bayer to reach if it were to fetch the $15.5 billion.

It will be hard for Bayer not to want to grab Zoetis, as it would instantly catapult them from 5th place to first in the animal health arena. Dekkers has said Bayer needs to be a leader in the areas where it does business. It might also soothe some corporate wounds after losing out to Eli Lilly ($LLY) in a contest earlier this year to buy Novartis' ($NVS) veterinary business and a run at Schering-Plough 5 years ago that Merck ($MRK) won.

For Big Pharma, the past few years have been a game of musical chairs that have seen companies shed noncore assets while also snapping up others in sectors like animal health where they weren't big players. In May, Bayer agreed to pay $14.2 billion for Merck's consumer division.

"Whether that's all translatable also in an animal health business is an interesting strategic question," Dekkers said in the conference call.

So what's next? As Dekkers said, "stay tuned."

- check out the Bloomberg story

Special Reports: Top 10 animal health companies of 2013 - Bayer - Zoetis | The top 10 pharma companies by 2013 revenue - Bayer HealthCare

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