Acquisitions are complicated, but swaps must be more so; they’re essentially buyouts times two. Case in point: Sanofi and Boehringer Ingelheim, which announced trade talks in December, have come to terms six months later.
It’s an animal health-for-consumer health swap, which sends Sanofi’s Merial unit to Boehringer in return for the German company’s consumer health business. For Sanofi, it's a two-in-one score that hives off Merial, already tagged for disposal, and builds up consumer health, already targeted for growth. And it’s part of CEO Olivier Brandicourt’s bid to remake the French drugmaker as sales of its diabetes franchise flag.
With the swap, Sanofi collects €4.7 billion in cash and a top slot in global consumer health with a 4.6% share of that market, though it will rank 6th in the U.S. For Boehringer, it’s a chance to take a lead role in the fast-growing animal health business.
The deal values Merial at €11.4 billion and Boehringer’s consumer business at €6.7 billion. The two companies expect to close by year’s end.
What with Boehringer’s consumer health sales added to its top line, and some “progressive implementation of synergies” for its costs--not to mention Sanofi’s plans to use some of the cash proceeds to buy back stock--the Big Pharma giant expects the swap to start adding to earnings after 2017. Sanofi didn’t specify where it plans to make cuts.
Meanwhile, Boehringer sees Merial’s addition to its lineup as “one of the most significant steps in our corporate history,” Chairman Andreas Barner said in a statement. “[W]e will substantially enhance our position in the future market for Animal Health and will prospectively be one of the largest global players in this segment,” Barner said.
The German company also expects Merial to mesh easily with its own animal health unit, and its consumer business to do the same at Sanofi. “The similarity in culture and approaches of BI and Sanofi will ensure that the businesses acquired by the other partner will develop well in the future,” Barner said.
Sanofi will be folding in a lineup of major consumer brands--including the Dulcolax laxative brand and Mucosolv, a cough medicine--and some additional market heft in “some major countries,” Brandicourt said in a statement. The two companies’ operations will be integrated in every country where they both operate, except China.
The Sanofi-Boehringer swap puts the two companies in line with several of their Big Pharma peers. The world's biggest drugmakers have been slimming down and refocusing, homing in on fields where they're strongest and shedding units and products that no longer fit.
That's why Novartis snapped up GlaxoSmithKline’s oncology business last year, trading away its vaccines and transferring consumer health to a joint venture now led by GSK. It's also why Merck & Co. ($MRK) sold its consumer health business to Bayer, and why AstraZeneca has been selling off products a few at a time while making bigger buy-ins such as Almirall's respiratory portfolio.
After the Sanofi-Boehringer deal closes, consumer health will account for about 15% of Sanofi’s sales, Bernstein analyst Tim Anderson said in a Monday investor note. Back when the deal was announced, Anderson pointed out its similarity to other industry moves, but said Sanofi needs to make some other deals bigger than this one.
"Strategically, Sanofi's scope of business narrows and becomes more focused--a (current) trend among global pharmaceutical companies--so in this sense the transaction is a modest positive, but the deal is not exactly transformative," he wrote in a Tuesday note.
Brandicourt has said he’s looking for deals as big as Sanofi's 2011 buyout of Genzyme, valued at about $20 billion, or slightly larger. But in the meantime, he’s pursuing a $9.4 billion hostile takeover of Medivation, the cancer-focused biotech that sells the blockbuster prostate cancer treatment Xtandi in partnership with Astellas.
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