Merck Seeks EU Approval

Yesterday, Merck & Co. (MRK - Analyst Report) announced that it is seeking approval from the European Union (EU) for its $41.1 billion acquisition of Schering-Plough Corp. (SGP). The regulatory authorities in the EU are expected to pass a verdict on the matter by Oct. 23.

Merck filed for approval of the merger in the EU after the completion of the sale of its 50% interest in animal health company Merial Limited (Merial) to Sanofi-Aventis (SNY - Analyst Report) for a cash consideration of $4 billion ( US ).

As a reminder, Merial was founded in 1997. It was a 50/50 joint venture between Merck and Sanofi-Aventis and is now a wholly owned subsidiary of the latter. In 2008, Merial was ranked third in the animal health market, with a market share estimated at 13.8% and sales of $2.7 billion just behind Schering’s animal health business, which registered sales of approximately $3 billion.

Merial sells two widely used pet medicines, flea-and-tick blocker Frontline and chewable heartworm preventer Heartgard. Its product portfolio also includes Ivomec, which kills parasites in hogs and cattle in addition to other medicines and vaccines for livestock.

The sale of Merck's interest in Merial was a prerequisite for the European approval of the $41.1 billion deal because Schering-Plough also sells animal health products. As per the terms of the $4 billion deal, Sanofi-Aventis has the option to buy Schering-Plough's animal health business after the merger of Merck and Schering-Plough is completed, which is expected in the fourth quarter of this year. This will expand Sanofi’s animal health business considerably and expand its presence in the sector even further.

In general, the merger between Schering-Plough and Merck will enable the combined company to have a more diverse portfolio across important therapeutic areas, including cardiovascular, respiratory, oncology, neuroscience, infectious disease, immunology, women’s health and other areas. Top-selling products of both companies will come under one roof following the merger. The merger should enable the combined entity to become one of the top five drugmakers in the world.

Currently, we are Neutral on both Schering-Plough and Merck

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