Swap deals are notoriously difficult to pull off, with the inability to make an "apples-to-apples" comparison of assets scuppering most attempts. Merck ($MRK) and Novartis ($NVS) are reportedly still trying to make a swap deal work though, with the latter's vaccine unit trading hands.
Bloomberg first reported Novartis was interested in swapping its animal health unit for Merck's over-the-counter drug business last month, and the situation appears to have evolved over the holidays. Novartis is now reportedly considering sweetening the deal by offering Merck its vaccine unit as well. On the surface, the deal makes sense. Both companies offload units that are struggling for scale while bolstering their remaining divisions. Making the deal work could prove tricky, though.
A healthcare banker told Reuters the companies have been talking for some time, but the difficulty of comparing the value of different businesses makes it a complicated deal. If Novartis fails to come to an agreement with Merck, it could push ahead with plans to sell the animal health unit. Last month, Novartis reportedly opened the unit's books to potential buyers, including Bayer. Novartis had $7 billion in cash as of September 30, though, and it has little use for the $3 billion a sale could generate.
It is unclear which companies, if any, would bid for Novartis' vaccine unit if the swap with Merck falls through. AstraZeneca's ($AZN) biotech unit MedImmune, GlaxoSmithKline ($GSK) and Sanofi ($SNY) already have their own flu vaccines, while Merck sells CSL's Afluria in the U.S. Where Novartis stands out is in its cell culture production capabilities and the potential of its meningitis B vaccine Bexsero. While the vaccine is yet to generate meaningful revenue, Novartis has high hopes for the product.
- read the Reuters article