Novartis ($NVS) is on its way to selling a business--or three. Pfizer ($PFE) is laying the operational groundwork for potential follow-ups to its nutrition unit sale and animal health spinoff. Abbott Laboratories ($ABT) set its pharma business free at the beginning of this year. Why wouldn't Merck ($MRK) decide to join the slim-down club?
After all, the U.S.-based drugmaker has an ancillary unit or two. And CEO Kenneth Frazier has said that those businesses--consumer health and animal health--would need to grow to major-player size if they were to remain within the Merck fold. Meanwhile, Merck is slashing costs and jobs to cope with generic competition present and future, and R&D setbacks have postponed the potential payoff from new products.
Besides, Merck investors might demand it. As Bloomberg reports, the company's shares lag others in Big Pharma. Cash from a sell-off or two would fund more stock buybacks and dividends. Or Frazier could use that cash to deal-make his way to a stronger pharma business.
So, when Frazier told analysts last week that Merck would evaluate animal health and consumer health to determine whether they're more valuable on their own, it wasn't a big shocker. "Merck management is responding to intense shareholder pressure," ISI Group analyst Mark Schoenebaum said (as quoted by Bloomberg).
Schoenebaum points out that Merck's animal-health business "could definitely stand on its own," a la Zoetis ($ZTS), the animal health division Pfizer spun off earlier this year to the market's delight. And he's definitely not impressed with Merck's other efforts; as earnings were announced last week, he issued this bleak assessment: "Merck sentiment continues to get really bad. I've become increasingly frustrated with fighting this management discount."
But as Bloomberg reports, some analysts say the case for a Merck divestment push isn't as clear-cut as that for, say, Pfizer or even Johnson & Johnson ($JNJ). Merck really needs the cash flow from those units to help shore up the pharma unit as it works to rebuild those sales, Goldman Sachs analyst Jami Rubin said--and Rubin was one of the key champions of Pfizer's break-up plans.
In any case, Merck is likely to move more slowly than Pfizer has, if it moves at all, according to Standard & Poor's analyst Herman Saftlas. "It's on the table, but whether it's going to happen, I have high doubts," Saftlas told Bloomberg. "Pfizer was planning this for many years and sliced and diced the company very carefully into different portions that could be easily siphoned off. As far as Merck, this is the first time we're hearing about something like this."
- read the Bloomberg piece
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