It's official: Sanofi-Aventis is buying the rest of Merial, its animal health joint venture with Merck. Price tag: $4 billion. And Sanofi negotiated an option to join forces again after Merck and Schering-Plough merge, combining Merial and Schering's animal health business Intervet. Under the option Sanofi would pay $9.25 billion to joint venture with Intervet.
Sanofi said the price valued Merial at three times sales and 10 times earnings. Some analysts called $4 billion too pricey, while others said that, considering the Intervet option and the potential for cost-savings via a joint venture, the deal looked attractive. "Dick and I both believe that animal health is a business we want to be in for the long term," Sanofi CEO Chris Viehbacher (photo) said on a conference call (as quoted by Bloomberg). "We saw an opportunity to create an even stronger and more successful animal-health business."
Combining the two companies would require antitrust approval, but Viehbacher seemed sanguine about the prospect, saying that Merial focuses on pets while Intervet specializes in products for livestock. "There is a little bit of overlap, but not very significant," Viehbacher said (as quoted by Reuters). "If we get the opportunity ... we could end up with a business that is better balanced between production animals and companion animals."
Several pharma companies view animal health as a way to diversify into a market that's growing faster than the people-drug business. Certainly Sanofi is placing a big bet on Merial's ability to counteract generic competition for its human drugs. We'll have to wait and see whether that bet pays off.