Change of Weekend Plans Dept. — I’m not travelling until Sunday now, but in view of the below, I’ll hold off on writing up the more detailed legal analysis of the five factors that are relevant (see the bottom part of this post) in evaluating the lawfulness of asset swaps — under Clayton Act §7, and Sherman Act §1.
My newly-refined bet is that Mr. Frazier will be asked on Monday night in San Francisco, about the purported $5 billion rumor, and I bet he will say that Merck doesn’t coment on market rumors. “Of course, we always look at interesting ideas,” he’ll say. And that’s exactly what he said, at this very same conference, just last year, when a shill for Fred Hassan, Brent Saunders, asked whether Merck might buy up Bausch + Lomb, when the Hassan & Saunders duo were flogging that company as a “great bargain basement deal,” to anyone who would listen. Mr. Frazier politely said Merck always evaluates options. “Sorta worth thinking about. . .” And in the end, a Canadian company bought B + L (after Fast Fred and Brent were unable to get an IPO done at the stupidly-high valuations they wanted — circa $10 billion). So (I think) it will most likely go something like that one, last year, on Monday. [As irony would have it — yep! you guessed it — Goldman was the banker on the B + L deal, at the time. Hah! Some things “never, ever change. . . .”]
Here’s the quote — from Medical Marketing & Media — that has me more comfortable that this rumor is all about Goldman looking to recover a bunch of sunk costs, in a Novartis transaction fee — where the transaction may never materialize. And that means. . . no fee for the Goldman Sachs banksters (as a $5 billion deal of this complexity would generate perhaps a bit over $100 million in “all-in” fees, for the Goldman firm). Do go read the whole MM&M article (subs. req.):
. . . .Bernstein analyst Tim Anderson wrote in his January 9 research note that his team asked Novartis about this very scenario during a 2013 Strategic Decision conference, and was given a very solid “no. . . .”
[Dr. Timothy] Anderson writes that there are a lot of unknowns at play, such as how profitable each of these businesses is. He also reminded investors that branded pharmaceuticals are the “core focus and profit driver” of each of these companies and that rearranging assets would “tidy things up a bit but does not trigger any sort of major shift in fundamentals. . . .”
Anderson also expects financials for both companies will be flat for 2013. . . .
If, at some future point, a deal does get announced involving Merck’s Consumer Health and Novartis’ Animal Health businesses — a la in a straight up swap — I’ll explain why those five factors likely mean that the regulators will completely rework the deal (blunting the anti-competitive effects), via required divestitures, and inclusion of third party competitors, like Lilly, Ceva, Lohmann or J&J, or any of the smaller animal health operators. [Finally, note that these same Clayton Act §7, and Sherman Act §1 problems will plague any acquiror of size, to some degree.] Until then, be excellent to one another — I’m out.