Daily Management Review

$20 Billion Asset Swap With Boehringer Planned to Reshape Sanofi


$20 Billion Asset Swap With Boehringer Planned to Reshape Sanofi
Talks for a $20 billion swap are going on between Sanofi and Boehringer Ingelheim. The family-owned German group's consumer health operation is proposed to be swapped with the French pharmaceuticals company's animal health business.
With an enterprise value of 11.4 billion euros ($12.6 billion), the Sanofi's Merial animal health arm is being proposed to be exchanged with Boehringer's consumer health division, worth 6.7 billion in the deal.
The companies said on Tuesday that Boehringer would also pay 4.7 billion euros in cash to Sanofi.
Olivier Brandicourt, the new boss at Sanofi has said he sees "limited synergies" between animal health and the rest of the business and the plan is indicative of the possible radical reshaping of Sanofi.
With proforma 2015 sales of approximately 5.1 billion euros and a global market share of around 4.6 percent, the deal would vault the French drugmaker into number one spot in the fragmented consumer healthcare (CHC) marketplace.
On the other hand Boehringer would become the world's second-largest animal health company.
As large companies try to focus on a smaller number of businesses where they can establish a leading position, the global pharmaceutical industry has seen a flurry of deal-making in the past two years.
"In entering into exclusive negotiations with Boehringer Ingelheim, we have acted swiftly to meet one of the key strategic objectives of our roadmap 2020, namely to build competitive positions in areas where we can achieve leadership," Brandicourt said.
The proposed deal would be like the three-way deal that involved Novartis, GlaxoSmithKline and Eli Lilly  in 2014. In that deal while Novartis and GSK swap drug and consumer assets, Lilly bought Novartis' animal health arm.
Making the planned transaction neutral to earnings in 2017 and accretive thereafter, Sanofi will use cash from the deal to buy back shares.
Due to the flagging sales of its diabetes treatments there had been a fall in the share prices of Sanofi. The shares of the company rose more than 4 percent as traders welcomed the high price achieved for animal health and the increased focus the move would give to the group.
"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 said in a note.
Some investors had worried that Brandicourt might be restricted in his ability to strike innovative deals, following the ousting of previous CEO Chris Viehbacher due to a clash with the board.
Sanofi will have a stronger position in the over-the-counter (OTC) market in cough, cold and digestive health remedies through the acquisition of Boehringer's CHC business. The deal would however exclude Boehringer's CHC business in China.
The business is viewed as resilient thanks to high brand loyalty, although CHC profit margins are lower than for prescription drugs and animal health.

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