Marijn Dekkers-led German pharma giant Bayer has struck a deal to acquire the consumer care business of Merck & Co., Inc for $14.2 billion, which will make it the world’s second-largest player in the over-the-counter products business.
Merck’s consumer care business includes leading brands such as Claritin, Coppertone and Dr. Scholl’s. Some of these are also present in the Indian market.
Pro-forma sales of the combined businesses in 2013 amounted to $7.4 billion with Merck’s business contributing approximately $2.2 billion.
The purchase price of $14.2 billion includes a payment associated with sales of Claritin and Afrin in certain countries where these products are still prescription only. The purchase price represents a 2013 pro-forma EBITDA multiple of 21x.
“This acquisition marks a major milestone on our path towards global leadership in the attractive non-prescription medicines business. At the same time we are leveraging our capabilities in the cardiovascular therapeutic area," said Marijn Dekkers, CEO, Bayer.
In 2013, Merck’s consumer care business generated approximately 70 per cent of its sales in the US, where it also holds leading brand positions. The business is primarily consists of products in the cold, allergy, sinus & flu, dermatology (including sun care), foot health and gastrointestinal categories. This business has approximately 2,250 employees and is headquartered in New Jersey (the US).
Production is located in Cleveland, Tennessee, the US; Chatsworth, Georgia, the US; Pointe Claire, Quebec, Canada; and Shanghai, China. Sun care and foot health research as well as distribution are based in Memphis, Tennessee, the US. The merged business is to be headquartered at the Bayer site in Whippany, New Jersey, the US.
This acquisition will give Bayer the global number two position in non-prescription products following recently announced consolidations in this highly attractive and growing healthcare industry segment, and will significantly enhance Bayer’s business across multiple therapeutic categories and geographies.
“With this transaction, we are acquiring leading product brands that will make Bayer the OTC leader in North America and Latin America and also move us into top global positions in key OTC product categories,” said Olivier Brandicourt, CEO of Bayer HealthCare.
Upon completion of the acquisition, Bayer is expected to achieve global leadership positions in dermatology and gastrointestinals, two of the five most important non-prescription health care product categories, and advance to the number two position in the cold, allergy, sinus and flu category. Bayer will remain number two in nutritionals and number three in analgesics.
The acquisition is expected to yield an immediate positive contribution of 2 per cent to core earnings per share in the first year after closing. The transaction is subject to approval from the relevant antitrust authorities, with closing expected in the second half of 2014.
Bayer plans to finance the acquisition with a bridge facility provided by Bank of America Merrill Lynch, BNP Paribas and Mizuho, which subsequently will be syndicated to a larger group of relationship banks.
In a related transaction, Bayer and Merck also agreed to enter into strategic pharma collaboration in the area of cardiovascular diseases with a focus on sGC modulation. Cardiovascular diseases represent one of the most significant therapeutic areas. Despite previous achievements, there remains high medical need, for example, in various diseases such as certain forms of pulmonary hypertension or heart failure. Novel modulators of the sGC pathway may have the potential to address this need. However, major development efforts and clinical programmes are required to fully explore the benefits of these novel compounds.
Bayer and Merck will equally share costs and profits from the sGC modulators and implement a joint development and commercialisation strategy and will lead the commercialisation for Adempas in the Americas while Merck will lead the commercialisation outside the Americas.
Merck will make payments to Bayer of up to $2.1 billion comprising an up-front payment of $1 billion and sales milestone payments of up to $1.1 billion related to future collective sales of certain collaboration compounds including Adempas.
This deal comes at a time when Pfizer is trying to sew a mega deal to buy AstraZeneca. However, the board of the British drugmaker has twice spurned the offer including the latest bid worth $106 billion.
(Edited by Joby Puthuparampil Johnson)
