Antitrust query into Merck acquisition may prompt more deals

By Alex Nussbaum
Bloomberg News / June 23, 2009
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NEW YORK - An antitrust inquiry into Merck & Co.’s planned purchase of Schering-Plough Corp. may add products for would-be buyers of the companies’ animal-drug units, led by Sanofi-Aventis SA and Eli Lilly & Co., an analyst said.

The Federal Trade Commission made a second request for information from Merck and Schering-Plough, mostly about the companies’ animal-health units, Amy Rose, a Merck spokeswoman, said yesterday. The inquiry “was anticipated’’ by the drug makers, which still plan to close the deal this year, Merck and Schering-Plough, both based in New Jersey, said in a statement.

Merck announced a $41.1 billion deal for Schering-Plough in March and said on June 3 that it plans to sell one of the companies’ animal-health units to help fund the acquisition and reduce overlap. If a sale doesn’t settle FTC concerns about competition in the animal drug industry, Merck or Schering-Plough may have to put more products on the market, said David Moskowitz, a Caris & Co. analyst in New York.

“There’s going to be that many more products for sale,’’ Moskowitz said. “It could affect pricing in the sense that Merck really wants to get those approvals.’’

Likely suitors for the units include Lilly, which wants to expand its animal business, and Paris-based Sanofi, already a partner with Merck in Merial Ltd., maker of the flea-repellant Frontline, Moskowitz said.

Sanofi may consider buying Merck’s half of Merial, chief executive Chris Viehbacher said April 29 in a conference call with investors. Joan Todd, a Lilly spokeswoman, said the company doesn’t comment on speculation.

Merck fell 73 cents, or 2.8 percent, to $25.18 yesterday in New York Stock Exchange composite trading. Schering-Plough declined 46 cents, or 1.9 percent, to $23.34. Lilly lost 49 cents, or 1.5 percent, to $33.22.

The FTC makes a second request for information in a minority of cases to ensure a buyout won’t hurt competition, the commission says on its website. Once the companies answer the request, the commission has 30 days to review the material.

Antitrust concerns are unlikely to derail Merck’s purchase of Schering-Plough, said Moskowitz.

“Merck absolutely needs this to get done to produce growth over next couple of years,’’ he said.

Merck said March 9 it would buy Schering-Plough, gaining experimental treatments for arthritis and cancer while bracing for increased competition to its drugs and vaccines.

Rose declined to say whether Merck had talked to any possible buyers for the animal units.

Merck and Sanofi’s Merial partnership had sales of more than $2.6 billion last year and employed about 5,700 people, according to Merial’s website. The Schering-Plough animal division, which makes vaccines for pets and farm animals, had revenue of $2.97 billion last year.