Sanofi to be No.1 in consumer health via Boehringer multi-billion swap


Sanofi is to take on Boehringer Ingelheim's consumer health division in exchange for its animal health business Merial – the latest in a trend for multi-billion swaps in big pharma.

The deal will see Germany's Boehringer pay Sanofi €4.7 billion as part of the deal, with Merial valued at €11.4 billion and its global consumer health (CHC) division – except its business in China – being exchanged at a price of €6.7 billion.

The deal is one of the biggest moves made by Olivier Brandicourt since he took over as Sanofi's chief executive in April 2015. The company's performance is dipping due to stagnating sales in its key diabetes division, and it has been under pressure to sell off some of its less profitable divisions, such as Merial.

The swap is similar to the three-part deal struck in 2014 in which GlaxoSmithKline (GSK) exchanged its oncology division for Novartis' vaccine unit and $16 billion, with the firms creating a joint consumer health division.

Sanofi says the deal announced today will make it the world's number one consumer health company, with expected revenues of around €5.1 billion in 2015 ($5.61 billion) and a global market share close to 4.6%.

This puts it ahead of rivals Bayer and the GSK-Novartis joint venture, even though Boehringer has held on to its China consumer health business; the German company knows this is one of the best routes into the huge, but hard-to-crack, market.

Sanofi says Boehringer's ex-China CHC business is worth an estimated €1.6 billion and is a good fit with its existing business in terms of products and geographies, giving it much increased market share in Germany and Japan.

Sanofi will gain access to a number of leading brands across different categories, including digestion treatments, vitamins, painkillers and cough and cold remedies.

Brandicourt pointed out that the swiftly-agreed deal met one of Sanofi's key objectives for its roadmap 2020 strategy, which is to consolidate in prime business areas.

"This transaction will allow Sanofi to become a world leader in the attractive non-prescription medicines market and will bring a complementary portfolio with highly recognised brands, allowing for mid- and long-term value creation," said Brandicourt.

Sanofi says it will use some of the €4.7 billion it will earn from the deal to repurchase shares. Taking this and potential synergies into account, it believes the deal will have a neutral effect on its earnings per share in 2017 and subsequent years, which means it will still be looking for new avenues for growth.

Nevertheless, shares in Sanofi have risen on the news, the high price agreed for animal health and the potential for greater dominance in CHC welcomed by the markets.

"The new CEO has clearly started to put his stamp on the company and isn't afraid or impeded from taking strategic action," analysts at Barclays commented in a note seen by Reuters.

For Boehringer, the deal allows it to become a bigger player in the animal health field, putting it into second place behind current leader Zoetis (formerly a division of Pfizer).

Swap allays job fears

Asset exchange deals are considerably more complex than simple mergers, acquisitions and divestments, and involve the transfer of thousands of employees from one company to another. However the deal will be welcomed in Germany and France, where union opposition to layoffs is fierce, as relatively few redundancies are expected, and site closures are not currently planned. Both companies have pledged to "pay particular attention to social matters" for existing workforces and locations, including skills and 'sensitivities' around jobs.

The deal is expected to be finalised by Q4 of 2016 following consultations with unions and employee councils and then clearance from regulatory authorities.

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Linda Banks

15 December, 2015