Reuters | November 9, 1999
ZURICH - Novartis's reported interest in life sciences rival Monsanto faces serious anti-trust problems given the companies' big agribusinesses, equity analysts said today.
This could kill any deal unless the firms find a creative way to handle the problem, they said, but the report fuelled talk that Novartis is hunting for a takeover to prevent being shunted from center stage in a fast-consolidating drugs sector.
Novartis said today it had no comment on a newspaper report that it was interested in buying all or part of U.S.-based Monsanto Co.
The Wall Street Journal, in an article published today, said Monsanto had been holding talks about a sale of all or part of the company, and Novartis had emerged as a serious suitor.
Concern for Overlap
"Because Novartis and Monsanto have a rather big share in the agrochemicals market, we would likely see significant anti-trust problems if you would combine the two agribusinesses. That is my major concern," said Birgit Kulhoff at Lombard Odier.
She estimated they had a combined 25 percent market share.
Eric Bernhardt at Clariden Bank also saw cartel problems if Monsanto did not agree to split itself up into parts and sell just its G.D. Searle drugs business.
But Michael Sjoestrom at Pictet & Cie thought the approach reported in the Journal made sense.
A Good Fit
"Novartis obviously knows the agribusiness pretty well because they are in it themselves, so they are a likely acquirer of both parts of Monsanto," he said.
Novartis already seems likely to spin off its own agribusiness, which has been suffering amid a global downturn in the farm sector, and could combine this with Monsanto's agriculture division, Sjoestrom said.
"There is apparently not that much overlap between the two businesses. There may be anti-trust issues, namely Bt corn in the U.S. market, maybe some issues on the research front, but other than that I think a solution could be found."
He suggested Novartis, whose war chest has $12.93 billion in cash, could finance a cash bid for Monsanto and pay a premium of some 10 to 20 percent over the current market price.
Novartis Talks About WLA-AHP
Novartis while declining comment on the report provided a statement it had given a Swiss newspaper late last week for a story on the impact of Warner-Lambert's agreed $69 billion offer for American Home Products.
Pfizer has since launched a hostile $74.6 billion bid for Warner-Lambert.
Asked what Novartis was looking for in a potential takeover candidate, the company said: "A strong presence in the United States and in a quickly growing therapeutic area would be one of a number of desirable criteria."
It said high prices for drugs companies were not exaggerated when compared to what telecommunications and Internet companies commanded, but stressed it was not under pressure to act because it had many promising new drugs in its development pipeline.
Swiss analysts were less sure that Novartis could afford to stand idle if two big U.S. drugs groups join forces.
"Then critical mass in the United States, at least in terms of marketing, will get bigger. In the medium term it still increases the pressure (on Novartis) a bit," Sjoestrom said. "Keep in mind that when Sandoz and Ciba merged (in 1996 to form Novartis), Novartis was the largest pharmaceuticals company. Now they are number seven, so it's moving quite fast."
Pressure on Novartis
Bernhardt agreed that Novartis could not relax.
"Their product pipeline is not outstanding and they will not grow strongly next year, so they are under presssure to do something," he said.
He suggested Novartis could aim for American Home Products.
"I'm not saying it will happen, but it will be an interesting option," he said, noting AHP also had problems with its agribusiness, but had a good pipeline and would complement Novartis well geographically.
Any such bid would have to be in cash, given U.S. investors' probable reluctance to accept relatively undervalued shares from a foreign company, he said.
Copyright 1999 Reuters. All rights reserved.
