NEW YORK / LONDON (Reuters)
— A handful of consumer and healthcare companies including
Bayer AG and Novartis are exploring a deal for Merck & Co Inc's
consumer healthcare business, as they seek to gain scale in a
fragmented industry, according to several people familiar with the
matter.
Reckitt Benckiser Group PLC and Procter & Gamble Co
are also among the parties that have held discussions with Merck
about buying the unit, best known for Coppertone sunscreen and
Claritin allergy medicine, the sources said this week.
The Merck business, which also includes Dr. Scholl's foot care and
other consumer products, could be worth $10 billion to $12 billion
in a potential sale, the people said, asking not to be identified
because the process is private.
Despite the large size of a potential deal and the unit's various
product lines, Merck is focused on selling the consumer health
business in its entirety, not in parts, the people said.
Merck, Bayer, Novartis, Reckitt and P&G all declined to comment.
Merck is meeting with potential buyers after receiving preliminary
offers a few weeks ago, and is expected to seek second-round offers
in late March, the people said.
Germany's Bayer already has a strong portfolio of consumer products
including pain medication Aleve and antacid Alka-Seltzer, but is
looking at deals to expand the business further. In 2012, Bayer lost
a bidding war with Reckitt for Schiff Nutrition International Inc,
which agreed to sell to the British consumer products group for $1.3
billion.
Reckitt owns over-the-counter medicines including Mucinex and
Nurofen and the international rights for the Scholl foot care
business. Its chief executive told Reuters in September that Reckitt
aimed to be a major player in consumer healthcare and has the
firepower to do sizeable deals.
Procter & Gamble also has a portfolio that includes a range of
health products, including Vicks cold and flu treatment and Prilosec
heartburn medication.
Among a range of options it has considered for the consumer unit,
Merck discussed a potential asset swap with Novartis AG under which
Merck would give up its consumer assets in return for the Swiss
drugmaker's animal health and other units, Reuters and others
previously reported.
The probability of carrying out such a deal, however, was seen as
low due to the complexity of valuing different businesses, prompting
Merck to explore an outright sale of its consumer unit as well,
Reuters reported in January.
Novartis remains interested, and could offer cash instead if an
asset swap does not pan out, the people familiar with the matter
said.
Merck, the second-largest U.S. drugmaker after Pfizer Inc, is being
advised by Morgan Stanley on the process, Reuters reported last
month.
Johnson & Johnson is the biggest player in the $200 billion global
consumer health industry, with about 4 percent of the market. Bayer,
GlaxoSmithKline PLC, Novartis, Pfizer and Sanofi SA are the other
major players, each with a market share of more than 2 percent.
Merck, however, is relatively small with around 1 percent of the
market, and has said in the past that it views its consumer business
as sub-scale.
Other large companies with consumer healthcare divisions, such as
Johnson & Johnson and Sanofi, have competing products to Merck and
are seen as unlikely buyers. Sanofi's Allegra allergy medication and
Johnson and Johnson's Zyrtec may overlap with Merck's Claritin
brand.
GSK is not pursuing the Merck business either, given its current low
appetite for deals and the poor fit between the firms' consumer
health portfolios, according to one person familiar with the matter.
Merck's Claritin allergy franchise would also overlap with GSK's
Flonase nasal spray, the person added.
A GSK spokesman declined to comment.
In exploring alternatives for the consumer business, Merck is
following in the footsteps of other drugmakers such as Pfizer, which
created shareholder value by separating non-core assets.
Pfizer sold its infant-nutrition business to Nestle SA for $11.9
billion in 2012, and last year spun off its animal health unit as a
separate publicly traded company called Zoetis Inc.
Many other drugmakers have been looking to shed businesses, prompted
by pricing pressure and increasing competition that has forced a
more rigorous approach to capital allocation. They have shown a new
willingness to consider whether other companies may be better owners
for certain assets.
(Reporting by Olivia Oran and Soyoung
Kim in New York and Anjuli Davies in London; additional reporting by
Arno Schuetze in Frankfurt; editing by Richard Chang)
Reckitt Benckiser Group PLC and Procter & Gamble Co
are also among the parties that have held discussions with Merck
about buying the unit, best known for Coppertone sunscreen and
Claritin allergy medicine, the sources said this week.
