Sanofi-Aventis has exercised its option to combine its animal health company Merial with Merck’s animal health business Intervet/Schering-Plough. The companies say the merger would create the world’s largest distributor of animal pharmaceuticals.

The move renews an animal health relationship between the two companies that ended last year when Sanofi-Aventis sold its 50% stake in Merial to Merck for $4B. That sale helped Merck move forward with a takeover of Schering-Plough in accordance with antitrust regulations, Dow Jones Newswires reported.

The new joint venture would be equally owned by Merck and Sanofi-Aventis, subject to execution of final agreements, antitrust review in the United States, Europe and other countries and other customary closing conditions. The completion of the transaction is expected to occur within a year, until which time both Merial and Intervet/Schering-Plough will continue to operate independently.

Dow Jones Newswires reported that the two companies may have to sell off parts of their portfolios, including a significant share of their poultry vaccines, to meet antitrust regulations. The news service cited U.S. Federal Trade Commission figures showing that the companies’ combined poultry vaccine portfolios account for about three-fourths of the market.

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The enterprize value of Merial has been fixed at $8B and the enterprize value of Intervet/Schering-Plough at $8.5B, leading to a true-up payment of $250M to Merck to establish a 50-50 joint venture. An additional amount of $750M will be paid by Sanofi-Aventis, in accordance with last year's agreement in which Sanofi-Aventis acquired full ownership of Merial. All payments, including adjustments for debt and certain other liabilities, will be made upon closing of the transaction.

“I am convinced that, together, we will create strong value in bringing broader and improved offerings in both pet and production animal segments,” said Christopher A. Viehbacher, chief executive officer of Sanofi-Aventis. He said that Intervet/Schering-Plough brought in about $2.74B in 2009 and Merial had sales of $2.55B, making them the second and third largest animal health businesses.

Richard T. Clark, Merck chairman, president and chief executive officer, said the joint venture would create “one of the broadest portfolios of animal health products and services in pharmaceuticals and biologics for millions of customers.” He added, “The planned joint venture will have an attractive geographical network … to provide health solutions based on customers’ needs, which often vary regionally.”

Merial is regarded as being strong in the American continent, with Intervet/Schering-Plough enjoying considerable market share in Europe, Asia and Africa. The projected market share of the joint venture would be 29% of animal health products. It is anticipated that, after divestitures, the combined company will employ about 13,000 people worldwide.