GlaxoSmithKline seen as favourite to buy Pfizer's consumer healthcare unit after Reckitt Benckiser ends interest

GlaxoSmithKline appears to be the frontrunner to buy Pfizer's consumer healthcare business after Reckitt Benckiser said that it ended its interest in the unit. Pfizer announced in October last year that it is reviewing strategic options for its consumer healthcare division, including a full or partial separation of the unit through a spin-off or sale, with binding offers reportedly due on March 22.

Reckitt Benckiser said it ended discussions with Pfizer regarding a proposal to buy part of the latter's consumer healthcare business, with CEO Rakesh Kapoor noting that "an acquisition for the whole Pfizer consumer health business did not fit our acquisition criteria and an acquisition of part of the business was not possible." A person familiar with the situation indicated that Reckitt Benckiser had been most interested in acquiring the pain medication Advil (ibuprofen).

In response, Pfizer said that it is reviewing the future of the consumer healthcare business following Reckitt Benckiser's decision. "Pfizer continues to evaluate potential strategic alternatives for the consumer healthcare business," the company noted, adding "we have not yet made a decision, but continue to expect to make one in 2018."

Meanwhile, sources close to the matter indicated that GlaxoSmithKline is working on an offer for Pfizer's unit, which people have suggested could fetch up to $20 billion. Last month, GlaxoSmithKline CEO Emma Walmsley said that a large consumer health acquisition was "not a need to have," although "you would expect us to take a serious look at any leading and very appealing assets in the sector."

Sources added that Pfizer may receive further offers by Thursday's deadline for bids, or the company may decide against a sale. Commenting on the news, Bernstein analyst Andrew Wood said "if indeed [Reckitt Benckiser] has opened the door for Pfizer [consumer healthcare] to be acquired by [GlaxoSmithKline], it might end up significantly strengthening one of its main [consumer healthcare] competitors."

However, analyst John Boris of Suntrust Robinson Humphrey suggested that "there's a low probability" that Pfizer will complete a transaction and could instead revisit a sale in the future. Boris noted that consumer healthcare products are facing intense competition from store-brand generic alternatives and online sales. "As a result, the brand cachet of an Advil or a Centrum is being eroded," Boris said, adding "the margins are there, but the question is, are you going to be able to grow the franchise?" 

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