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Merck & Co to follow in the footsteps of its biggest rival, Pfizer

Posted on 07 November 2013

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Merck & Co considering a break off of their animal-health and consumer product division, which could boost their share hold value by $50 billion.

Merck & Co. (MRK), the second-biggest U.S. drugmaker, may be coming around to the idea of separating its businesses after the breakup of larger rival Pfizer Inc. (PFE) boosted shareholder value by $50 billion.

Merck Chairman and Chief Executive Officer Ken Frazier said last week that he’s evaluating whether the animal-health unit and consumer products would be better off outside the $134 billion company. Slimming down to focus on human medicines would follow in the footsteps of Pfizer, which spun off its animal-health unit and sold its baby formula business. Novartis (NOVN) AG also has identified its animal-health division as a top candidate to sell, Bloomberg News reported yesterday.

Shares of Merck have trailed every other large drugmaker in the past 12 months and underperformed the Standard & Poor’s 500 Health Care Index since 2010, according to data compiled by Bloomberg. Photographer: Emile Wamsteker/Bloomberg

Shares of Merck have trailed every other large drugmaker in the past 12 months and underperformed the Standard & Poor’s 500 Health Care Index since 2010, according to data compiled by Bloomberg. The Whitehouse Station, New Jersey-based company is firing 20 percent of its workers and grappling with declining sales and setbacks on experimental medicines. As some rivals boost investor returns through spinoffs and unit sales, Goldman Sachs Group Inc. estimates that there’s almost $13 billion of unrealized value within Merck’s conglomerate structure.

“You have a road map laid out by Pfizer,” said David Heupel, a Minneapolis-based fund manager at Thrivent Financial for Lutherans, which oversees $12 billion in equity assets including Merck shares. “You don’t have to be the first company to go down that path and hope that it creates value because we have some proof that it does.”
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Medicines for animals, such as antibiotics and vaccines, generated $3.4 billion of sales last year, 7.2 percent of Merck’s $47 billion of total revenue. Consumer-care products, such as Coppertone suntan lotion, Claritin allergy medicine and the Dr. Scholl’s foot-care line, had $1.95 billion of sales.

Merck is evaluating those units to determine whether they “produce the most value inside our portfolio or outside our portfolio,” Frazier, who has been CEO of Merck since January 2011, said on an earnings conference call Oct. 28.

“We continue to evaluate all of our businesses -- including Animal Health and Consumer Care -- and currently view them as important components of our diverse portfolio, contributing both top and bottom line growth,” Steve Cragle, a spokesman for Merck, said in an e-mail yesterday. “If we were to view them as being more productive outside of Merck, we would consider alternatives.”

Read the full story at Bloomberg (link no longer available)

 

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