That’s Merial Intervet Schering-Plough to you
Pharmaceutical company Merck’s $41 billion merger with Schering-Plough will include the animal health businesses of both companies. That has some fascinating implications for the Australian market.
Merck’s animal health interests are represented by Merial, which it jointly owns with Sanofi-Aventis. For many years Merial was the world’s largest animal health company and it is still close to the top with $US2.6 billion in revenue. A couple of years ago Schering-Plough acquired Organon Biosciences, including the animal health business Intervet, lifting its combined animal health revenue to around $US3 billion.
Subject to any divestments required by regulators, if the two are combined the turnover of $US5.6 billion will eclipse the combined sales of Pfizer and Wyeth’s animal health subsidiary Fort Dodge at $US3.9 billion and return it to the top spot. Not surprisingly, there is some interest in how likely that is to occur.
Merck will probably not want to keep the Intervet/Schering-Plough animal health business separate from Merial, even if that was allowable under the terms of its agreement with Sanofi-Aventis. Rumours about Merck’s lack of commitment to animal health have been around for years.
However, to merge the two businesses without altering the 50/50 joint venture arrangement would necessitate Sanofi-Aventis paying for half of Intervet/Schering-Plough. That may raise questions about Sanofi-Aventis’ own commitment to animal health.
There are several other possibilities. Sanofi-Aventis may be offered the whole lot at an attractive price, for example. A European company, perhaps it regards the animal health market differently to the Americans, who increasingly insist on defining it as simply a microcosm of the human market.
Another option would be to spin off the combined business in a trade sale or float. Precedent for a float is Syngenta, created from the merger of the crop protection divisions of Novartis and AstraZeneca.
And of course there is the possibility that Merck might buy out Sanofi-Aventis’ existing interest in Merial. Although if the rumours are true, that seems unlikely.
In Australia, Merial and Intervet/Schering-Plough are ranked at three and four respectively in the animal health market, after Pfizer and Fort Dodge. Combined, they will rank at number two assuming the acquisition of Fort Dodge by Pfizer is completed earlier.
To some extent both companies are still adjusting to previous acquisitions. Schering-Plough’s absorption of Intervet has only just settled down while Merial’s accommodation of Ancare (a NZ animal health company) remains a work in progress.
Nonetheless, there could be substantial synergies from this merger. Intervet/Schering-Plough’s livestock products are sold under the 120 year old Coopers brand, an enormously valuable asset that could be extended to some of Ancare’s innovative formulations. Merial has a powerful presence in the pet care market, led by its flea product Frontline Plus, which could be used to leverage the Intervet/Schering-Plough range.
Their product ranges are also relatively complementary and would not dominate any important categories if combined, meaning divestments may be minimal at worst.
But that still leaves the problem of what to call the combined company. Somehow Merial Intervet Schering-Plough just doesn’t roll off the tongue.
