Thursday, French drug maker Sanofi-Aventis SA (SNY, SNYNF.PK) said it would acquire Merck & Co., Inc.'s (MRK) 50% stake in their animal health joint venture, Merial Ltd., for US$4 billion in cash.
Following the completion of Merck's planned merger with Schering-Plough (SGP), Sanofi-Aventis would combine Merial with Intervet/Schering-Plough Animal Health in new equally owned joint venture with the new Merck. The deal is expected to be complete before the planned merger with Schering-Plough is finalized, which is expected to occur during the fourth quarter of 2009.
The sale of Merck's interest in the joint venture is subject to clearance by the European antitrust authorities. Following the close of the Merial transaction, Sanofi-Aventis will get full control of Merial, which was formed in 1997 as a 50/50 joint venture between Merck and Sanofi-Aventis. Merial, which employs about 5,400 people and operates in more than 150 countries, is an innovation-driven animal health company. The company had sales of over $2.6 billion last year, and its products include the Ivomec parasite treatment.
According to Sanofi-Aventis, the deal values Merial on the basis of 3.0 x 2008 sales and 10.2 x 2008 earnings before interest and taxes, or EBIT, and the acquisition is expected to be accretive to Sanofi-Aventis' adjusted net income from the first year.
According to Bloomberg reports Wednesday, the planned deal of Merial would help Sanofi increase its revenues, as many of its revenue spinners are facing generic competition by 2012, while Merck is selling its animal-health assets following a regulatory mandate concerning competition.
Further, Merck, Sanofi-Aventis and Schering-Plough announced the signing of a call option agreement, under which Sanofi-Aventis would have an option to combine the Intervet/Schering-Plough Animal Health business with Merial, following the closing of the Merck/Schering-Plough merger. The new animal health joint venture would be owned equally by the new Merck and Sanofi-Aventis, and is expected to be a global leader in animal health.
The companies noted that Sanofi-Aventis would have an opportunity to conduct due diligence before any exercise of its call option to form the new joint venture, following the close of Merck's merger with Schering-Plough.
As part of the call option agreement, the companies have fixed the value of Merial at $8 billion. The minimum total value received by the new Merck and its affiliates by contributing Intervet/Schering-Plough to the combined entity would be $9.25 billion. It would comprise a floor valuation of Intervet/Schering-Plough of $8.5 billion and an additional payment of $750 million.
Based on the valuation exercise of Intervet/Schering-Plough and customary transaction adjustments, the combination of Merial and Intervet/Schering-Plough would require a true-up payment to establish a 50/50 joint venture with equal ownership between the new Merck and Sanofi-Aventis. The companies noted that any formation of a new animal health joint venture with Sanofi-Aventis is subject to customary closing conditions including antitrust review in the United States and Europe.
Until the closing of any potential combination of Merial and Intervet/Schering-Plough Animal Health, both companies will continue to operate independently.
It was on March 9, 2009, that Merck agreed to buy Schering-Plough in a $41.1 billion stock and cash transaction. Under the definitive merger deal terms, each Schering-Plough shareholders would receive 0.5767 shares of Merck and $10.50 in cash, and the aggregate consideration will comprise a combination of about 56% stock and 44% cash.
Commenting on the Merial deal, Richard Clark, Merck chairman, president and chief executive officer, stated, "These agreements should enable us to proceed expeditiously with the closing of our merger with Schering-Plough in the fourth quarter as planned, and also gain an outstanding animal health business through Intervet/Schering-Plough Animal Health."
According to Christopher Viehbacher, Chief Executive Officer of Sanofi-Aventis, the planned combination of Merial and Intervet/Schering-Plough "would create a new leader in this US$19 billion global animal health market, supporting our vision of a global diversified healthcare leader. In an environment of increasing complexity, I am convinced that alliances have an important place and I look forward to the prospect of further partnering with the new Merck in animal health to build on our longstanding relationship."
The companies said the agreements provide Merck with certain rights to terminate the option for a fee of $400 million or $600 million, between September 30, 2009 and the closing of the merger between Merck and Schering-Plough.
In a separate deal, Wednesday, Covance Inc. (CVD) said it reached a definitive agreement with Merck, where in Merck has committed to a five-year $145 million contract to purchase genomic analysis services from Covance. In addition, Covance would buy Merck's Seattle-based Gene Expression Laboratory that performs genomics services.
On Monday, Sanofi-Aventis said its vaccines division Sanofi Pasteur has signed an agreement with Merieux Alliance to acquire Merieux's French subsidiary ShanH, which holds a majority stake in Hyderabad, India-based vaccine company Shantha Biotechnics. The deal, which is expected to be complete before the end of the third quarter, values Shantha at 550 million euros.
On Wednesday's regular trading session, MRK closed at $29.87, down $0.15 or 0.50%, on a volume of 15.9 million shares, while SNY settled at $32.99, down $0.45 or 1.35%, on a volume of 2.2 million shares.
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