Sanofi-Aventis (SNY) -- which only yesterday reported that its second-quarter profit surged 29.4 percent as net sales increased by 11.2 percent, beat estimates and raised 2009 guidance -- today announced it would purchase Merck & Co.'s (MRK) 50 percent stake in their Merial animal-health venture.

This deal has been widely anticipated, and yesterday even leaked to the press, but what wasn't known until now was the steep price. Analysts pegged the stake's worth at around two billion euros ($2.8 billion), but Sanofi is paying $4 billion on the basis of 3.0 x 2008 sales and 10.2 x 2008 earnings before interest and taxes (EBIT). Merial had sales of $2.6 billion last year.
Sanofi has been scrambling to find new sources of revenue to replace some it would lose when drugs that contribute 20 percent to its sales will go off-patent by 2012. So far, it's been replenishing its pipeline, re-focusing R&D, acquiring some generics, and now purchasing the 50 percent stake in Merial it didn't already own. The acquisition is expected to be accretive to Sanofi-Aventis' adjusted net income from the first year, Sanofi said.

Not only that, but following the closing of the Merck/Schering-Plough merger, Sanofi-Aventis would have an option to combine the Intervet/Schering-Plough Animal Health business with Merial to form an animal health joint venture that would be owned equally by the new Merck and Sanofi-Aventis. Intervet had sales of $3 billion last year and Sanofi isn't the only one interested so far. So perhaps it overpaid for Merial to get Intervet.

Christopher A. Viehbacher, CEO of Sanofi-Aventis said: "We are pleased with the acquisition of Merial, a major global player in animal health, and the possibility of combining Merial and Intervet/Schering-Plough's complementary businesses. The combination would create a new leader in this $19 billion global animal health market."

But the option part might be more tricky, though, as right now the reason Merck is selling Merial is because of potential anti-trust issues in the animal health segment with the $41 billion Schering acquisition. Merging the operations with Sanofi sounds like it could cause the same anti-trust issues.

As for Merck, Richard T. Clark, Merck chairman, president and CEO said, "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."

This acquisition sounded like it would be mutually beneficial to both companies. However, it seems Merck got the better part of the deal.

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