P&G Acquires Merck KGaA’s Consumer Health Business, Pfizer Spurned Again

Pfizer’s consumer health business has been spurned again. This time by mega-consumer goods company Proctor & Gamble. which opted today to acquire Germany-based Merck KGaA’s consumer health unit for $4.2 billion.

Only a few weeks ago P&G was reportedly in talks with Pfizer for its consumer unit that has been valued between $15 and $20 billion. Instead of acquiring a portfolio of familiar brands from Pfizer that include Advil and Robitussin, P&G preferred a number of branded vitamins such as the Seven Seas and Neurobion labels. P&G said the deal will add a "fast-growing portfolio of differentiated, physician-supported brands across a broad geographic footprint." P&G said the deal will improve its own offerings across 15 of the world’s top over-the-counter markets for healthcare products. Top markets where Merck’s products are sold are primarily in Europe, Latin America and Asia.

Additionally, the company said Merck KGaA’s consumer health unit will provide the American company with strong healthcare commercial and supply capabilities that will complement its existing portfolio, which includes Vicks, Metamucil, Pepto-Bismol, Crest and Oral-B.

"We like the steady, broad-based growth of the OTC Health Care market and are pleased to add the Consumer Health portfolio and people of Merck KGaA, Darmstadt, Germany, to the P&G family," David Taylor, P&G’s chairman of the board, president and chief executive officer said in a statement.

P&G’s own health care products brought in about $7.5 billion in revenue last year, about 12 percent of its total sales, Reuters reported this morning. Vincent Muenier, an analyst with Morgan Stanley, told Reuters that the price P&G paid for Merck KGaA’s consumer unit implied a "valuation of 4.7 times sales and around 19 times the operating profit (EBITDA) for the business."

Steve Bishop, P&G’s president of Global Health Care, said the Merck KGaA unit "provides an attractive and complementary footprint to further fuel growth as we continue to grow our existing leading brands." Over the past two years Merck’s business unit grew by 6 percent.

Merck KGaA placed its consumer health unit on the market last year. Multiple companies were reported to have expressed interest in acquiring the business, including Perrigo, Mylan, Reckitt Benckiser (which also recently walked away from a deal for Pfizer’s business unit) and Nestle. Merck KGaA divested its business unit so it could focus on other core businesses, including its pharma unit.

Stefan Oschmann, chairman and chief executive officer of Merck KGaA, said the sale to P&G is a clear demonstration of the company’s commitment to "actively shape" its portfolio.

"Consumer Health is a strong business that deserves the best possible opportunities for its future development. With P&G we have found a strong, highly recognized player who has the necessary scale to successfully drive the business going forward," Oschmann said in a statement.

In its announcement, P&G said the acquisition of Merck KGaA’s consumer unit will "replace and improve" upon the PGT Healthcare venture the company had with Teva Pharmaceuticals. That partnership will terminate July 1. By adding Merck KGaA’s portfolio to its own, P&G expects the new offerings will increase its revenue drivers significantly. Tom Finn, president of P&G Global Personal Health Care, said the new products will provide the company with "the capabilities and portfolio scale" that are needed to operate a "winning" over-the-counter business on its own – without the need for a healthcare partner.

The P&G deal is the second major consumer health unit deal in recent weeks. GlaxoSmithKlinebought out Novartis’ 36.5 percent stake in its joint healthcare unit for $13 billion.

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