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Two by two

15 Dec 2015 By Neil Unmack

Sanofi and Boehringer Ingelheim are scratching each others’ backs. The French pharma group is swapping its animal health business for the consumer medicines arm of the German company. The deal value tots up to 23 billion euros, including Boehringer’s 4.7 billion cash payment to Sanofi. Boehringer may have a marginally better deal, but Sanofi’s need is probably greater.

Asset swaps make for sound alternatives to outright takeovers when, as now, valuations are high and bidding contests fierce. The risk of overpayment does not go away, though. Carving out bits of companies can also be complex, as GlaxoSmithKline found when it took over Novartis’ vaccines business in 2014.

The businesses being swapped between Sanofi and privately-held Boehringer offer stable cashflow and rarity value on both sides. The deal catapults Sanofi to a global number one position for consumer health through brands such as laxative Dulcolax. Boehringer jumps to number two in the fragmented industry of animal health from number six, and acquires brands such as NexGard, a chewing gum for dogs.

The two firms are coy about potential synergies and the relative lack of overlaps means they may be quite small. Meanwhile, the consumer businesses taken by Sanofi are valued at just over four times 2015 sales, in line with quoted peers. Boehringer is buying Merial for 4.6 times sales, below rival Zoetis, which trades at over 5 times, and animal health is a faster-growing business.

But Sanofi’s appetite for change may well be greater. Its stock lags peers at around 14 times forward earnings, where the sector trades on a multiple of 16. New Chief Executive Olivier Brandicourt has promised focus and growth. Here, it is surrendering one of the fastest-growing parts of its business. Even before the Dec. 15 deal, Berenberg reckons it will eke out just 3.5 percent annual sales growth through to 2019.

Still, it’s the French group’s first big transaction since the acquisition of Genzyme in 2009 and by no means a bad deal, bringing added scale and focus. Given Sanofi’s challenges, Brandicourt may have more deals coming. If he can avoid the ever-present risk of overpaying, the ambition to change Sanofi is worth supporting.


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