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Information on global poultry, pig and animal feed markets.
Poultry Welfare
on April 7, 2011

Merck and Sanofi abandon merger, industry will be better served

In a joint release dated March 22, 2011, Merck Inc. and Sanofi-Aventis announced the “mutual termination of their agreement to form a new animal health joint venture.” It was proposed that Merck would merge their Intervet and Schering-Plough companies with 2010 U.S. revenue of $2.9 billion with the Merial subsidiary of Sanofi-Aventis, which generated $2.6 billion in the U.S. during the same year. Merial was previously a joint venture between Merck Inc. and Sanofi-Aventis.

The reason for the termination relates to inevitable scrutiny and opposition by the Federal Trade Commission which would have considered the merger as anti-competitive. The combined enterprise would dominate the market for poultry vaccines possibly to the extent of 70% of annual sales. The architects of the merger apparently could not structure a combined animal health company which would satisfy regulatory requirements without extensive divestment.

A competitive environment  

In many respects the announcement of the decision not to merge will create greater stability among the R &D, administrative and sales personnel of the two companies. For over a year creativity, investment and innovation have been constrained by uncertainty since generally mergers between large companies result in redundancies especially in R & D and administration. Now that there is more certainty as to future directions for both companies, it will be possible to develop strategies for a competitive environment.

Interestingly, Jim Cramer, a prominent financial pundit, commented on the termination of the planned merger on his “Mad Money” program aired on CNBC by contrasting the announcements of the dissolution and the proposed acquisition of T-Mobile by AT&T. Although this combination would create a communications giant with overtones of oligopoly, the extensive coverage created by the merger would be of benefit to rural populations. In addition the “marriage” had the support of the communications unions which to date have been unable to organize the T-Mobile labor force. It was noted that AT&T had obviously prepared their ground and created a broad spectrum of support for their communications entity. In contrast the pharmaceutical industry has few friends in Congress of late and especially not in the current administration and the Department of Justice, rendering the approval of the merger DOA.

The bottom line is that the poultry and intensive livestock industries will be better served by competition among relatively large suppliers on the basis of price and with large entities exerting their size and strength to maintain viable programs of R & D and technical service.

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