Sanofi and BI hammer out details of $12.5B animal health swap

Last December, Germany’s closely held pharmaceutical giant Boehringer Ingelheim turned heads when it announced it would be swapping its consumer health business for Sanofi’s ($SNY) Merial animal health unit. Merial, with an enterprise value of €11.4 billion ($12.5 billion), will launch BI’s Vetmedica into the upper tiers of animal health, giving the company 13 research facilities, 18 manufacturing plants and some of the best-known brands in animal health, including the dog parasiticides Heartgard and NexGard.
On June 27, the two companies announced they have signed contracts to secure the transaction, which is expected to close later this year. The companies have agreed that the French cities Lyon and Toulouse will be the “key operational centers” of BI’s animal health business, according to a press release. BI’s consumer health business is worth €6.7 billion ($7.4 billion), so it will pay Sanofi €4.7 billion ($5.2 billion) in cash to make up for the difference in value between the two units.
One question the companies haven’t answered is what will be the fate of Merial’s U.S. operation? Sanofi has maintained a commanding presence in the U.S. animal health market. A strong U.S. marketing campaign for NexGard, the company’s chewable flea-and-tick fighter for dogs that was launched in 2014, helped push Merial’s overall sales up nearly 11% on a constant-currency basis last year to $2.5 billion. And the company has worked with local governments to distribute rabies vaccines for wildlife in states where the disease has been hard to control.
BI said in the release on the asset swap that it would work to “sustain the momentum” of Merial’s U.S. operation, though it didn’t provide any details about how that effort would proceed. “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,” said Andreas Barner, chairman of BI’s board, in the release.
BI predicts the Merial addition will double its sales in animal health to €3.8 billion ($4.2 billion) a year, according to the release. In addition to strengthening its position in the companion-animal market, acquiring Merial will launch it to the top of the market for swine vaccines, as well as adding a suite of products for horses to its product catalog.
As for Sanofi, which has undergone a restructuring under CEO Olivier Brandicourt, it expects to use part of the proceeds from the BI asset swap to buy shares back. The company predicts the transaction will be earnings-neutral in 2017 and accretive to earnings after that.
– here’s the press release