P&G Buys German Health Business -- WSJ
April 19 2018 - 3:02AM
Dow Jones News
By Sharon Terlep and Jonathan D. Rockoff
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (April 19, 2018).
Procter & Gamble Co. agreed to acquire the consumer-health
business from Germany's Merck KGaA, in a $4.2 billion deal that
adds vitamins and food supplements to its lineup of
over-the-counter medicines.
The companies announced the transaction on Thursday morning. The
Wall Street Journal earlier reported they were near a deal.
The deal is one of the biggest acquisitions in recent years for
the Cincinnati giant, which has been struggling with slow growth in
key markets and falling revenue in its big Gillette razor business.
P&G is expected to report its latest quarterly results on
Thursday morning, moving up a day.
The Merck KGaA business manufactures over-the-counter products
and generates around $1 billion in annual sales from a portfolio of
10 core brands that are sold in more than 40 markets but not the
U.S. Its products include vitamins, Febimion supplements for women,
Seven Seas cod liver oil and Nasivin nasal decongestant.
The German company put the unit on the block last year to focus
its health care activities on prescription drugs. It isn't
affiliated with Merck & Co., the U.S. drug maker.
P&G said Thursday that the Merck KGaA acquisition would
replace a joint venture with Teva Pharmaceuticals Industries Ltd.
that sold OTC medicines, vitamins and supplements outside North
America. The joint venture, which was formed in 2011 and 51% owned
by P&G, will be terminated on July 1, P&G said.
P&G also recently held discussions with Pfizer Inc. to
acquire its consumer health-care business, but the talks ended
without a deal, according to people familiar with the discussions.
The Pfizer unit, with brands including Advil pain medicine, Centrum
vitamins and ChapStick lip balm, is more than three times the size
of Merck KGaA's.
Analysts said that Pfizer sale could top $10 billion, but
potential buyers including GlaxoSmithKline PLC and now P&G have
chosen to deal with other companies.
Last month Glaxo agreed to buy Novartis AG's 36.5% stake in
their consumer-health joint venture for $13 billion.
P&G's health-care unit includes Crest and Oral B toothpaste
as well as Vicks cold medicine, Prilosec heartburn relief and Pepto
Bismol. It generated $7.5 billion in sales for the fiscal year
ended June 30, roughly 12% of P&G's overall revenue.
Consumer health is a highly fragmented, $233 billion market
globally and has been consolidating in recent years. It has emerged
as a tough business for drug makers like Merck KGaA. Sales don't
grow as quickly as prescription medicines, while updating brands
and marketing them is expensive because of evolving demands from
consumers and consolidation among consumer-health players and
retailers.
Merck KGaA decided to sell the business because its
prescription-drugs and performance materials units have been
developing products such as a cancer immunotherapy and a
multiple-sclerosis drug that the company considers promising and it
wants to focus resources on realizing their potential.
For P&G, the deal comes four months after the company
conceded a board seat to activist investor Nelson P eltz, ending
the most expensive proxy battle ever fought. P&G said it
officially won the vote by a razor-thin margin, but agreed to add
Mr. Peltz.
That Mr. Peltz came so close to defeating P&G was a rebuke
of the company's strategy to jump-start sales. P&G has relied
on huge brands like Tide and Gillette while rivals scooped up
startups and smaller brands. Mr. Peltz, who argued that P&G
should shift to smaller, niche brands and pull in more talent from
the outside, assumed his board seat March 1.
P&G's share price is down 13% from a year ago.
Among the deals struck by P&G rivals in recent years are
Unilever PLC's acquisitions in 2016 of online razor seller Dollar
Shave Club and cleaning-products maker Seventh Generation Inc. S.C.
Johnson & Son Inc., maker of Windex and Glade, agreed last year
to acquire cleaning-product brands Method and Ecover. U.K.-based
Reckitt Benckiser Group PLC last year agreed to buy baby-food maker
Mead Johnson Nutrition Co. for $16.6 billion.
Write to Sharon Terlep at sharon.terlep@wsj.com and Jonathan D.
Rockoff at Jonathan.Rockoff@wsj.com
(END) Dow Jones Newswires
April 19, 2018 02:47 ET (06:47 GMT)
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