Novartis and Merck: ‘Wanna Trade?’ Companies Propose to Swap Businesses


Novartis AG (NYSE:NVS) and Merck & Co., Inc. (NYSE:MRK) are looking to trade businesses in an agreement that could be an earnings boost for both parties, reported Bloomberg Wednesday. In the proposed deal, Novartis would trade its animal health and human vaccines business for Merck‘s over-the-counter health products unit.

Both companies, in a reflection of current trends within the industry, have been focusing on prioritizing their core strengths while chucking other lines of business; the suggested swap would involve trading as much as $5 billion in assets, an unnamed source who spoke to Bloomberg said. The idea is not a new one, as apparently the two companies have been in talks for some time but have continued to run into difficulty because of the challenge posed by comparing the relative attraction of two very different businesses, per Reuters.

Merck’s over-the-counter line-up includes Coppertone, a popular sunblock, and Claritin allergy medicine. Both products would fit in nicely with Novartis’ current line of products for consumers, such as Triaminic cold medicine and Lamisil, an anti-fungal treatment. Both companies would prefer an asset swap over a sale, but if the proposed deal doesn’t work out, Novartis has said it will likely choose to sell its unit to one of the leading animal health firms such as Bayer AG, Zoetis, Inc. (NYSE:ZTS), Sanofi SA (NYSE:SNY), Eli Lilly & Co. (NYSE:LLY), or Boehringer Ingelheim Pharmaceuticals, Inc., according to Reuters.

The prospective agreement mirrors a recent trend in the pharmaceutical industry to divest or spin off non-core businesses. In the past two years Pfizer Inc. (NYSE:PFE), Bristol-Myers Squibb Co. (NYSE:BMY) and Abbott Laboratories (NYSE:ABT) have all sold units which didn’t fit into their main strength areas. Pfizer divested its animal health and animal nutrition units so that it might focus on new brand name drugs, while Bristol-Myers sold its stake in a diabetes joint-venture unit just last month so it might focus on the cancer therapeutic area. Similarly, Abbott Labs jettisoned its drug unit to form a new company, AbbVie, Inc. (NYSE:ABBV), reports Bloomberg.

Merck’s animal health business is currently the second-biggest in the industry, bringing in approximately $3.40 billion in sales in 2012, according to Bloomberg, while the company’s consumer health units are simply too small. Meanwhile Citigroup analysts have estimated that Novartis’ veterinary unit is worth about $4 billion, including net debt. Novartis has yet to clinch a deal with Merck, and may still decide to go a different route.