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Analysts: Bayer could use plastics proceeds to fund a deal for Zoetis

September 19, 2014
Energy & Chemical Value Chain
Now that Bayer has announced a planned spinoff of its plastics business, all eyes are on what it may do with the proceeds. And the way some analysts see it, that money could go toward a pickup of animal health company Zoetis.
 
The German pharma’s divestment may raise more than €12 billion ($15.5 billion), Bloomberg reports. And as Jefferies analyst Jeffrey Holford pointed out to the news service, that would put a pickup of Zoetis–valued at about $18 billion–within Bayer’s reach.
 
So with the spinoff scheduled for sometime within the next 18 months, Bayer may soon have the means to buy the former Pfizer unit. But will it have the desire?
 
According to data compiled by Bloomberg, a deal could lift Bayer’s 2015 profit by about 6%–if it pays a 30% premium to Zoetis’ closing price from Sept. 17 and funds the purchase with cash, that is. And with $4.56 billion in 2013 revenue, Zoetis leads the global animal-health field. Bayer currently trails in fifth place, despite failed attempts to pick up Novartis’ ($NVS) veterinary businesses from Novartis this year–it lost out to Eli Lilly ($LLY) in that contest–and Schering-Plough 5 years back.
 
“Buying Zoetis would give Bayer an instant leadership position, and it seems like they’ve expressed wanting to be leaders in the spaces they compete in,” Gabelli & Co. analyst Kevin Kedra told Bloomberg. “It would give them a business that has stable cash flow, steady growth and a relatively predictable business in an area that they know pretty well.”
 
And just as pharma companies have lately been looking to shed their non-core assets, they’ve also been looking to bulk up in areas where they’re not top players. Bayer CEO Marijn Dekkers has said that drive fueled the company’s $14.2 billion deal for Merck’s consumer unit this May.
 
But “whether that’s all translatable also in an animal health business is an interesting strategic question that Bayer is occupying itself with and has for some time,” he said on a conference call yesterday, as quoted by Bloomberg. “So stay tuned on that.”
 
By Carly Helfand
 

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