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Thursday, February 20, 2014
Reuters Exclusive: Bayer, Novartis, others eye Merck's consumer health
unit - sources
By Olivia Oran, Soyoung Kim and Anjuli Davies
NEW YORK/LONDON (Reuters) - A handful of consumer and healthcare companies including Bayer AG and Novartis are exploring a deal for Merck & Co Inc's consumer healthcare business, as they seek to gain scale in a fragmented industry, according to several people familiar with the matter.
Reckitt Benckiser Group PLC and Procter & Gamble Co are also among the parties that have held discussions with Merck about buying the unit, best known for Coppertone sunscreen and Claritin allergy medicine, the sources said this week.
The Merck business, which also includes Dr. Scholl's foot care and other consumer products, could be worth $10 billion to $12 billion in a potential sale, the people said, asking not to be identified because the process is private.
Despite the large size of a potential deal and the unit's various product lines, Merck is focused on selling the consumer health business in its entirety, not in parts, the people said.
Merck, Bayer, Novartis, Reckitt and P&G all declined to comment.
Merck is meeting with potential buyers after receiving preliminary offers a few weeks ago, and is expected to seek second-round offers in late March, the people said.
Germany's Bayer already has a strong portfolio of consumer products including pain medication Aleve and antacid Alka-Seltzer, but is looking at deals to expand the business further. In 2012, Bayer lost a bidding war with Reckitt for Schiff Nutrition International Inc, which agreed to sell to the British consumer products group for $1.3 billion.
Reckitt owns over-the-counter medicines including Mucinex and Nurofen and the international rights for the Scholl foot care business. Its chief executive told Reuters in September that Reckitt aimed to be a major player in consumer healthcare and has the firepower to do sizeable deals.
Procter & Gamble also has a portfolio that includes a range of health products, including Vicks cold and flu treatment and Prilosec heartburn medication.
Among a range of options it has considered for the consumer unit, Merck discussed a potential asset swap with Novartis AG under which Merck would give up its consumer assets in return for the Swiss drugmaker's animal health and other units, Reuters and others previously reported.
The probability of carrying out such a deal, however, was seen as low due to the complexity of valuing different businesses, prompting Merck to explore an outright sale of its consumer unit as well, Reuters reported in January.
Novartis remains interested, and could offer cash instead if an asset swap does not pan out, the people familiar with the matter said.
Merck, the second-largest U.S. drugmaker after Pfizer Inc, is being advised by Morgan Stanley on the process, Reuters reported last month.
Johnson & Johnson is the biggest player in the $200 billion global consumer health industry, with about 4 percent of the market. Bayer, GlaxoSmithKline PLC, Novartis, Pfizer and Sanofi SA are the other major players, each with a market share of more than 2 percent.
Merck, however, is relatively small with around 1 percent of the market, and has said in the past that it views its consumer business as sub-scale.
Other large companies with consumer healthcare divisions, such as Johnson & Johnson and Sanofi, have competing products to Merck and are seen as unlikely buyers. Sanofi's Allegra allergy medication and Johnson and Johnson's Zyrtec may overlap with Merck's Claritin brand.
GSK is not pursuing the Merck business either, given its current low appetite for deals and the poor fit between the firms' consumer health portfolios, according to one person familiar with the matter. Merck's Claritin allergy franchise would also overlap with GSK's Flonase nasal spray, the person added.
A GSK spokesman declined to comment.
In exploring alternatives for the consumer business, Merck is following in the footsteps of other drugmakers such as Pfizer, which created shareholder value by separating non-core assets.
Pfizer sold its infant-nutrition business to Nestle SA for $11.9 billion in 2012, and last year spun off its animal health unit as a separate publicly traded company called Zoetis Inc.
Many other drugmakers have been looking to shed businesses, prompted by pricing pressure and increasing competition that has forced a more rigorous approach to capital allocation. They have shown a new willingness to consider whether other companies may be better owners for certain assets.
(Reporting by Olivia Oran and Soyoung Kim in New York and Anjuli Davies in London; additional reporting by Arno Schuetze in Frankfurt; Editing by Richard Chang)