Sanofi SNY announced that it has entered into exclusive talks with Boehringer Ingelheim regarding a possible exchange of their respective businesses. Sanofi’s shares were up 3.4% following the announcement.
The proposed swap would consist of an exchange of Sanofi’s animal health business (Merial) with an enterprise value of €11.4 billion with Boehringer Ingelheim’s consumer healthcare (CHC) business worth €6.7 billion. In addition, Boehringer Ingelheim would make a gross cash payment of €4.7 billion to Sanofi. However, the deal does not include Boehringer Ingelheim’s CHC business in China.
The agreement, if realized, is expected to close in the fourth quarter of 2016.
How will Sanofi Benefit?
Sanofi would find itself in the number one spot in CHC with expected pro forma sales of about €5.1 billion in 2015 and global market share close to 4.6%. Sales of Boehringer Ingelheim CHC business (excluding China) are estimated at about €1.6 billion for 2015 and the operations are highly complementary with those of Sanofi’s CHC, both in terms of products and geographies.
The deal would also strengthen Sanofi’s presence in German and Japanese CHC markets, which has been limited till now, and thereby expand its presence in Boehringer Ingelheim’s priority categories. In addition, Sanofi’s CHC business in the U.S., Europe, Latin America and Eurasia would expand extensively, earning it multiple leadership positions in key countries and/or on key product categories. While Sanofi would gain rights to iconic brands like Antispasmodics, Gastrointestinal, VMS and Analgesics, it would attain critical mass in Cough & Cold.
Notably, Germany would become a key center for Sanofi CHC business, particularly for Gastro-Intestinal and Cough & Cold categories. These categories are expected to gain from the strong capabilities of Boehringer Ingelheim teams.
Sanofi intends to use a portion of the net proceeds of the transaction to repurchase shares. Considering the anticipated CHC results, share buybacks and potential synergies, Sanofi expects the deal to be neutral to its business EPS in 2017 and accretive in subsequent years.
What’s there for Boehringer Ingelheim?
Meanwhile, Boehringer Ingelheim would become the second-largest animal health company with pro forma sales of about €3.8 billion in 2015. The combined portfolios and technology platforms in anti-parasitics, vaccines and pharmaceutical specialties would position the collective entity in key growth segments of the industry. Moreover, the species portfolios would benefit from Merial's expertise in companion animals and poultry, as well as Boehringer Ingelheim's expertise in swine.
While Lyon would be a key operational center for Boehringer Ingelheim's animal health business, it will maintain operations and R&D and manufacturing centers in France. Considering that the U.S. market is an important part of Merial's business, Boehringer Ingelheim would pay particular heed toward maintaining the momentum of its U.S. operations.
To make the deal a success, both companies intend to focus on social matters as well as skills and retention sensitivities.
The latest development does not come as a surprise. Last month, at an investor relation seminar, Sanofi was said to be exploring strategic options for Merial, considering its synergies with other businesses were not encouraging.
Earlier this year, GlaxoSmithKline plc GSK sold its oncology business in exchange for Novartis AG’s NVS vaccines business (excluding influenza vaccines).
Sanofi is a Zacks Rank #4 (Sell) stock. A better-ranked stock in the health care sector is Achillion Pharmaceuticals, Inc. ACHN, sporting a Zacks Rank #1 (Strong Buy).
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