Sanofi-Aventis has a call-option agreement to merge Merial with Intervet/Schering-Plough after Merck closes its acquisition of Schering-Plough.

Sanofi-Aventis is buying Merck & Co.’s half of the two companies’ animal health joint venture, Merial, for $4 billion in cash. Additionally, sanofi-aventis may end up combining Merial with Intervet/Schering-Plough Animal Health, once the planned $41.1 billion merger of Merck and Schering-Plough has been completed later this year.

If sanofi-aventis decides to exercise its call option to combine Merial with Intervet/Schering-Plough Animal Health, the combined animal health unit would be owned 50:50 between sanofi-aventis and Merck & Co. “The combination would create a new leader in this $19 billion global animal health market,” according to Christopher A. Viehbacher, sanofi-aventis CEO.

The current arrangement also provides Merck with rights to terminate the option prior to closing its acquisition of Schering-Plough for a fee of $400 million or $600 million. “These agreements should enable us to proceed expeditiously with the closing of our merger with Schering-Plough in the fourth quarter as planned and also gain an outstanding animal health business through Intervet/Schering-Plough Animal Health,” says Richard T. Clark, Merck chairman, president, and CEO.

The sale of Merck’s interest in the Merial joint venture is still subject to European antitrust clearance. Merck says, though, that it anticipates the transaction will be completed before its planned merger with Schering-Plough is finalized, which is expected during the fourth quarter.

As part of sanofi-aventis’s call option to merge the animal health units, Merial’s value has been fixed at $8 billion. The minimum total value received by the new Merck and its affiliates by contributing Intervet/Schering-Plough to the combined entity would be $9.25 billion. If the Merial-Intervet/Schering-Plough combination is ratified, a true-up payment would then be made to establish a 50/50 joint venture with ownership split equally between the new Merck and sanofi-aventis.

Merial reported nonconsolidated sales of $2.64 billion in 2008, up 7.9% from 2007. Sanofi-Aventis claims the business is the world’s number three in animal health. Schering-Plough reported $3 billion in global net sales of animal health products for 2008, up 138% over 2007 figures. The company said $1.9 billion of this was related to Intervet. 

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