US-headquartered consumer goods group P&G will pay €3.4 billion euros ($4.2 bn) to acquire the business unit which includes vitamin brands such as Seven Seas, Femibion and Neurobion.
The purchase price suggests that German giant Merck has somewhat climbed down from initial price demands of as much as €4 billion – which had reportedly let to initial suitors like Nestlé pulling out of the process.
P&G said the acquisition and will it to expand its portfolio of consumer health-care products, which have seen sales growth of around 6% in the past two years, and will also allow greater exposure to Latin American and Asian markets.
Bloomberg Intelligence analyst said Deborah Aitken said the deal represents “a step in the right direction for P&G.”
“We like the steady, broad-based growth of the OTC Health Care market and are pleased to add the consumer-health portfolio,” commented David Taylor, Procter & Gamble’s CEO.
Consumer health deals
The P&G-Merck deal is the latest in a line of M&A activity in the consumer goods area, where several big players including Merck and Pfizer have been looking to divest business units in a bid to focus more on pharmaceutical pipelines.
Last month GSK agreed to buy Novartis out of their consumer healthcare joint venture for $13 billion after dropping its pursuit of Pfizer’s consumer unit. Meanwhile, Pfizer has struggled to find a buyer for its consumer health business after Reckitt Benckiser and GSK dropped out last month and Johnson & Johnson stepped away in January.
According to Euromonitor data the global market for consumer health in terms of retail value stands at more than $233 billion (€188bn) – with GlaxoSmithKline (GSK), Johnson & Johnson (J&J) and Bayer making up the top three companies by market share.
P&G currently rank ninth in terms of market share for the consumer health market, said Euromonitor.
P&G’s existing consumer health business includes Vicks cold relief, Prilosec heartburn tablets and Pepto-Bismol. Currently consumer health brands account for around 12% of P&G sales, accounting for $7.5 billion (€6 bn) revenue.
Merck’s over-the-counter products generate close to $1 billion in annual sales, meaning a valuation of 4.7 times sales and around 19 times operating profit (EBITDA) for the business. According to Morgan Stanley analyst Vincent Meunier this is at the high end of recent deals in the sector.
“This will help (Merck) focus on its pharma unit and refurbish its pipeline,” he said.
Around 3,300 Merck employees could move to P&G when the transaction is completed later this year.
The deal will also see P&G buy a majority stake in the Merck’s Indian consumer health business, Merck Ltd, and subsequently make a mandatory tender offer to minority shareholders, meanwhile a final agreement on Merck’s French consumer health business has yet to be worked out with labour representatives. However, any agreement on the French business will not alter the overall deal value.
In a separate announcement P&G also said it will terminate its consumer care joint venture with Israel-based Teva Pharmaceutical, saying P&G and Teva's strategies were no longer aligned.
Teva said the terms of the agreement to terminate the JV with P&G would not be disclosed and that the dissolution was amicable.
“Each company will take back its own brand and product assets to re-establish independent OTC businesses,” Teva added in a statement.