P&G buys Merck health brands for $4.2B

Troy Powers
April 20, 2018

It does not yet include Merck's French consumer health business, for which P&G has made a binding offer.

"Consumer Health is a strong business that deserves the best possible opportunities for its future development". Merck's unit also includes vitamin brands such as Femibion, Neurobion and Nasivin.

The German drugmaker recorded €911 million ($987 million) worth of sales from its consumer products in 2017. "The deal represents 'a step in the right direction for P&G, '" Bloomberg Intelligence analyst Deborah Aitken tells them.

The family-controlled drugmaker had hired JP Morgan in September to sell the over-the-counter vitamins and food supplements business to help finance research into higher-margin prescription drugs. The brands are sold primarily in Europe, Latin America and Asia. Pfizer Inc.is reviewing its options after the sale of its consumer-health business fizzled in March, with potential suitors such as Reckitt Benckiser Group Plc bowing out. "We have large businesses in several hard markets". But like many of its peers, Merck KGaA appears more interested in creating branded treatments in lucrative therapeutic areas like cancer and multiple sclerosis.

"We delivered modest top and bottom line growth in a challenging macro environment in the third quarter, said David Taylor, chairman, president and chief executive officer".

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Moody's retail analyst Charlie O'Shea points to the deal as a "win-win", and Amazon founder and CEO Jeff Bezos concurs. Unlike with an Echo device, you have to hit a button to reach Alexa , as it's not listening for a wake word.

It also owes a lot of money: data collected by Reuters indicates the company has a total debt-to-equity ratio of 77.29, whereas the industry average is 11.04.

As part of the agreement, P&G would purchase a majority stake in the German firm's Indian consumer health business-Merck Ltd, and would then gradually make a mandatory tender offer to the minority stakeholders.

P&G is maintaining its full-year sales guidance at 2 to 3% for this fiscal year, but its numbers will likely fall at the low end of the road.

"The deal, expected to close by June 2019, will bolster P&G's $7.5 billion health-care business with strong oral care and gastrointestinal brands with a fast-growing basket of overseas brands doing $1 billion a year in additional business in several over-the-counter categories", writes Alexander Coolidge for the Cincinnati Enquirer. Merck KGaA's stock, conversely, was up less than 1% Thursday morning.