Agreement includes option for sanofi-aventis to combine Merial
with Intervet/Schering-Plough Animal Health in new equally owned joint
venture with the new Merck
Future joint venture would be a global leader in animal health
Sanofi-aventis (EURONEXT: SAN and NYSE: SNY) and Merck & Co., Inc.
(NYSE: MRK) today announced that the companies have signed a definitive
agreement under which Merck will sell its 50 percent interest in the
companies' current animal health joint venture, Merial Limited (Merial),
to sanofi-aventis for $4 billion (US) in cash. Formed in 1997, Merial is
a leading animal health company that is a 50/50 joint venture between
Merck and sanofi-aventis. Following the close of the transaction,
sanofi-aventis will own 100 percent of Merial.
Sanofi-aventis said the acquisition price values Merial on the basis of
3.0 x 2008 sales and 10.2 x 2008 earnings before interest and taxes
(EBIT). The acquisition is expected to be accretive to sanofi-aventis'
adjusted net income from the first year.
In addition to the Merial agreement, Merck, sanofi-aventis and
Schering-Plough announced the signing of a call option agreement. Under
the terms of the call option agreement, 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.
"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," said Richard T. Clark, Merck
chairman, president and chief executive officer. "We are pleased that
our long-time partner sanofi-aventis will purchase Merck's interest in
Merial, the successful joint venture we built together," he added. "We
look forward to the potential opportunity to bring together the strong
animal health businesses of sanofi-aventis and the new Merck."
Commenting on these agreements, Christopher A. Viehbacher, Chief
Executive Officer of sanofi-aventis said: “We are pleased with the
acquisition of Merial, a major global player in animal heath, and the
possibility of combining Merial and Intervet/Schering-Plough's
complementary businesses. The combination would create a new leader in
this USD 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 sale of Merck's interest in the Merial joint venture is subject to
clearance by the European antitrust authorities. Merck said it
anticipates completing the transaction before its planned merger with
Schering-Plough is finalized, which is expected to occur during the
fourth quarter of 2009. Following the close of Merck's merger with
Schering-Plough, sanofi-aventis would have an opportunity to conduct due
diligence before any exercise of its call option to form the new joint
venture.
As part of the call option agreement, the value of Merial has been fixed
at $8 billion (US). 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 (US), consisting of a floor
valuation of Intervet/Schering-Plough of $8.5 billion (US) (subject to
potential upward revision based on a valuation exercise by the two
parties) and an additional payment of $750 million (US). Based on the
valuation exercise of Intervet/Schering-Plough and customary transaction
adjustments, if Merial and Intervet/Schering-Plough are combined, a
true-up payment would be paid to establish a 50/50 joint venture with
equal ownership between the new Merck and sanofi-aventis.
