Spotlight on Bayer & MSD post Sanofi - Boehringer Asset Swap


One of the biggest asset swap deals in Animal Health industry is having its unintended consequences. While the industry waits for consummation of recently announced Sanofi - Boehringer asset swap, focus has swiftly shifted to Bayer and to a lesser extent towards Merck (known as MSD outside of US & Canada).

In a fairly dynamic animal health industry, M&As' spate and consequent company rankings have been relatively more dynamic than the broad market over last 2 years. In a largely consolidated market particularly after the recent Sanofi - Boehringer asset swap , options now are rather limited for both Bayer and MSD.

A definite and decisive shift towards biologicals and biopharmaceuticals (in future) within AH industry further starkly exposes the gaps in Bayer AH portfolio. Having missed the opportunities with Merial, Novartis and Harris Vaccines and a near miss in Zoetis in the past, Bayer may not have too many targets left to augment its AH portfolio.

A number of smaller, bolt-on options abound but none of these opportunities would ensure global, leading position for Bayer.

With a severely diminished pool of attractive enough options and expected intense competition from MSD, Bayer may have to choose among:-

Buy Off

With its last asset swap / acquisition in Consumer Care business in 2014 and having paid off some corporate debt in 2015, Bayer may be readying itself for an acquisition in 2016 - though the choice could either be to further strengthen its Consumer Care business or an acquisition in AH or in best case, both.

Interestingly, in both the cases - potential targets could be Pfizer OTC business (expected to be divested after recent mega-merger with Allergan) or Pfizer Spun Off - Zoetis.

Rumors in the summer of 2015 about Bayer eying Zoetis could well turn into reality in 2016, after the virtual exit of Valeant Pharmaceuticals from the race (other potential suitor for Zoetis) currently struggling with challenges of its own making.

Other potential targets for Bayer AH may be MSD and Ceva - the latter though could allow access to biologicals portfolio but still falling short of ensuring leading position for Bayer.

Spin Off

Another strategic option worth considering could be the Spin Off of Bayer AH business - following the lead of Zoetis - thus creating a second, stand alone, listed AH business.

Though this approach may not ensure market leadership for Bayer AH immediately, but could still be an option on the table, should Bayer decide to pursue acquisition in Consumer Care business alone. An independent AH business could then pursue its own destiny.

Trade Off

Though flavour of the season, the only available option for a potential Trade Off for Bayer could be to pursue Merck once again (known as MSD outside of US & Canada), this time for AH business.

A potential merger of Merck - Bayer AH could ensure a podium finish for Bayer and much needed access to fairly attractive biologicals portfolio of Merck.

While majority of AH colleagues enter into Holidays season this week with much deserved break, M&A teams at Bayer and to an extent at Merck may still be left working overtime. Industry could be witnessing the fruits of their labour in the New Year.

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