MRK — No More Dog-Days for Merck
Merck (MRK) has made no bones about its desire to refocus on pharmaceuticals. While the bulk of that effort has proactively put its consumer care division up for sale, Merck is quietly interested in letting go of its animal health segment.
It’s not a bad business line; had Zimax not been suspended last quarter, the animal health unit would have posted a 5% improvement in year-over-year revenue for Q1. But, the animal care division is a headache for the company … not small enough to simply throw away, but not big enough to justify the time and resources it currently consumes.
For perspective, Merck’s animal care business generated $3.4 billion in sales last year, which was about 7% of the company’s total revenue. Assuming the fairly typical normal price tag of 20 times EBITDA for an up-and-running unit, one could make the case that the Merck animal care unit is worth north of $8 billion if it were to be spun off.