Novartis opens books to suitors for $4 bln-plus animal health business

By Ludwig Burger and Arno Schuetze FRANKFURT (Reuters) - Swiss drugmaker Novartis is ready to sell its animal health subsidiary and has opened its books to Bayer and other rivals interested in a business that could change hands for more than 3 billion euros ($4.1 billion), sources familiar with the matter told Reuters. Germany's Bayer is seeking to bolster its position as a diversified life sciences company and made clear its interest in the animal health sector on Tuesday, though it faces competition from at least two rivals. Suitors including Bayer, Eli Lilly of the United States and Germany's unlisted Boehringer are conducting due diligence assessments of the business, the financial sources said. Novartis declined to comment on a possible sale, but Chief Executive Joe Jimenez and Chairman Joerg Reinhardt have said they are considering options for non-core assets that lack the scale to become world leaders. "Animal health has been a 'grow or go' topic for Novartis for some time. The new management has now decided to make the cut," said one banker familiar with the matter. Shortly after Reinhardt joined Novartis as chairman in August - from his previous job as Bayer's head of healthcare - he suggested a review of some of the Swiss drugmaker's underperforming businesses. Bayer, in turn, is more focused on expansion. "We are interested in growing our animal health business," CEO Marijn Dekkers told Reuters at a pharmaceuticals conference in London on Tuesday, though he declined to comment on whether it is looking at the Novartis assets. "For Bayer it would be a good fit in principle," said M.M. Warburg & Co analyst Ulrich Huwald. "It's a business with strong cash flows, stable income and synergies with the development of human medicines." Eli Lilly was not immediately available for comment and Boehringer declined to comment. LEADING PLAYERS Combining Bayer's veterinary drug sales of about $1.7 billion with Novartis' $1.1 billion would lift the German company from fifth place to third or fourth in the global animal health market, where former Pfizer subsidiary Zoetis leads the way. Eli Lilly's veterinary drugs business had $2 billion in sales last year, making it the No.4 player, while Boehringer was sixth with $1.3 billion. Merck & Co and Sanofi sit at No.2 and No.3 respectively, with sales of $3.4 billion and $2.8 billion. Citi analyst Andrew Baum estimated in a note on October 22 that Novartis's animal health unit would be worth about $4 billion. Bankers said the asset could be valued at about 15-16 times earnings before interest, tax, depreciation and amortisation (EBITDA) but Novartis has not provided an EBITDA breakdown for animal health. According to StarMine data, Zoetis's market value including debt stands at 4.3 times current sales and 17.5 times EBITDA. The animal health sector is expected to grow faster than the global economy as ageing western societies spend more money on pets while livestock farming increases in emerging markets, where appetite for meat rises with average household incomes. The potential sale of Novartis's animal health business would be part of the company's continuing review of operations, which last month resulted in the sale of its blood transfusion testing unit to Spain's Grifols for $1.68 billion. The sources said that Novartis has hired Goldman Sachs to assist it in the review. Goldman declined to comment. ($1 = 0.7377 euros) (Additional reporting by Frank Siebelt in Frankfurt, Ben Hirschler and Anjuli Davies in London and Oliver Hirt in Zurich; Editing by David Goodman)