Bayer AG agreed to acquire Merck & Co.’s consumer unit for $14.2 billion, solidifying its position near the top of the market for over-the-counter health products.
The two companies also will collaborate on the development and marketing of a class of drugs that includes Bayer’s Adempas, which is approved to treat pulmonary arterial hypertension, Merck and Bayer said in a statement today. Merck will pay Bayer $1 billion for the collaboration, with additional payments possible if sales goals are met.
The deal is the second large consumer-health transaction in a month of reshuffling in the pharmaceutical industry as the biggest drugmakers drop units that aren’t leaders in a particular segment. Novartis AG and GlaxoSmithKline Plc agreed April 22 to a consumer joint venture. Glaxo also sold its oncology business to Novartis, which sold its vaccines line to Glaxo and its animal-health business to Eli Lilly & Co.
“The combination of Merck Consumer Care’s complementary portfolio of products and geographic reach with Bayer’s will create a global consumer care business better positioned to serve consumers around the world,” Bayer Chief Executive Officer Marijn Dekkers said in the statement.
Bayer rose 0.3 percent to 100.30 euros at 12:45 p.m. in Frankfurt.
Buying the Merck unit adds the allergy medicine Claritin and Coppertone sunblock to a Bayer portfolio anchored by the iconic pain pill aspirin. Bayer, based in Leverkusen, Germany, had 3.9 billion euros ($5.4 billion) in sales of non-prescription medicines last year, accounting for about 9.7 percent of the drug and chemical conglomerate’s revenue.
Bayer ranks second in over-the-counter drugs by sales, behind Johnson & Johnson, according to a ranking compiled by the Germany company. After the Bayer-Merck transaction closes and Glaxo and Novartis form their venture, that venture will be the largest, followed by Bayer and J&J, according to Bayer.
Consumer health is a unit that Dekkers has sought to strengthen. The executive, known as a dealmaker from his days molding Thermo Fisher Scientific Inc., has said since the beginning of his tenure in 2010 that he wants Bayer near the top of each of its markets.
The Merck unit reported $1.89 billion in sales last year, down 3 percent from 2012 after the termination of some distribution agreements in China. Merck decided to put that business and its animal-health unit under review last year in order to allocate more capital to new drugs like its immune system-based cancer medicine, CEO Ken Frazier has said.
“The sale of our consumer care business is part of our efforts to ensure that assets within our portfolio align with our core strategy, have industry-leading potential and generate long-term shareholder value,” said Frazier said in today’s statement.
The segment accounts for about 4 percent of Merck’s revenue and includes the Miralax constipation treatment, Lotrimin athlete’s foot creams and Afrin nasal congestion sprays. Seventy percent of its sales come from the U.S., Exane analysts estimate.
Bayer won the contest after Reckitt Benckiser Group Plc, a U.K. company that moved aggressively on recent consumer-health assets, dropped out of the bidding on April 30.
A tussle between the two companies ended the other way in 2012. Reckitt Benckiser outbid Bayer then to buy Schiff Nutrition International Inc. with a $1.4 billion offer that valued the maker of MegaRed Omega-3 capsules at about 28 times earnings before interest, taxes, depreciation and amortization. The U.K. company has been willing to pay a premium to expand the health unit, its fastest-growing business, which increased revenue 27 percent last year.
Bank of America Corp. advised Bayer while Merck worked with Morgan Stanley. The law firms Fried Frank Harris Shriver & Jacobson LLP and Morgan Lewis & Bockius LLP acted as legal counsel to Merck. JPMorgan Chase & Co. advised Merck in the assessment of its portfolio leading up to the deal, Merck said.
Bayer plans to finance the acquisition with a bridge facility provided by Bank of America, BNP Paribas SA and Mizuho. (Bloomberg)
