Is this ever going to happen?

Is this ever going to happen?

Well it’s now May and still no official word from Bayer that they have sold their diabetes device unit to Panasonic/KKR. Now it’s quite possible that this deal will still happen and frankly we have no reason to believe it won’t. However the fact that it has not been officially announced does create the possibility that maybe, just maybe something isn’t quite right. That perhaps Panasonic/KKR is trying to extract an even lower price.

Just as refresher Bayer has had this unit up for sale twice. The first time around the company thought they had a deal with our wine drinking friends in France. Yet in typical Sanofi (NYSE:SNY) fashion the company could not pull the trigger. Now we would like to believe that Sanofi pulled out of this deal because they came to their senses. Yet this was not the case as also in typical Sanofi fashion they just couldn’t make up their mind on what they should do.

As was widely reported the original asking price for this unit was in the $2 billion neighborhood. A neighborhood Panasonic/KKR didn’t want to play in as the rumored sale price is closer to $830 million. Perhaps this is why Bayer, while the sale was supposedly taking place, restructured the unit again eliminating nearly half of the few people still employed in diabetes. To say that Bayer Diabetes is a shell of its former self is one the biggest understatements of all time.

Again we have no reason to believe the sale won’t take place that this delay is just Panasonic/KKR taking their time. Yet we can’t help but wonder if Panasonic/KKR is having second thoughts, that maybe even at the lower price this really isn’t such a good idea. That perhaps it’s not such a good idea to throw good money into a very bad market.

As we have noted in the past when Panasonic/KKR surfaced as the likely buyer this deal was being done for defensive reasons. That Panasonic/KKR was buying the unit not because they felt the BGM market was getting better rather because they already had a relationship with Bayer and they were worried that Bayer would just throw in the towel if they couldn’t sell the unit.

Whatever happens here one thing is clear when it comes to the branded players in the market the party is over. The BGM market once again is being transformed. This market once the domain of Johnson and Johnson (NYSE:JNJ), Roche, Bayer and Abbott (NYSE:ABT) will be splintered as newer players chip away. Of the remaining branded players we suspect that JNJ is about the only company who will remain viable 5 years from today. This is not to say Roche and Abbott don’t want to be viable but the fact remains they lack the scale necessary to remain viable.

Based on what we’ve seen so far this year our guess is Roche and Abbott will concentrate more on overseas markets. This doesn’t mean they will completely abandon the US market but given JNJ’s dominance here and the cost to compete better to allocate resources to markets where they can compete. This will buy Roche and Abbott time as they hope that Panasonic/KKR is just the first private equity to enter this wacky world. Both companies know that the clock is ticking and time is not on their side.

Bayer, assuming they can get this deal closed, has already made their choice.