P&G Nears Deal to Acquire Merck KGaA's Consumer-Health Unit -- Update
April 19 2018 - 12:18AM
Dow Jones News
By Sharon Terlep and Jonathan D. Rockoff
Procter & Gamble Co. is near a deal to acquire the
consumer-health business from Germany's Merck KGaA, people familiar
with the matter said, adding vitamins and food supplements to
P&G's lineup of over-the-counter medicines.
The transaction could be announced as soon as Thursday, the
people said. Terms couldn't be learned. Analysts have estimated the
Merck KGaA unit could fetch more than $4 billion in a sale.
It would be 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, after moving the announcement a day earlier.
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 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.
(END) Dow Jones Newswires
April 19, 2018 00:03 ET (04:03 GMT)
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