- After seven months on the block, Merck KGaA's consumer health business is headed to a new owner. Proctor & Gamble Co. announced on Thursday plans to acquire the unit for €3.4 billion ($4.2 billion) in cash.
- The German drugmaker recorded €911 million ($987 million) worth of sales from its consumer products in 2017. Those products include the pain ointment Kytta, the nasal decongestant spray Nasivin and the vitamin B tablets Neurobion.
- P&G also presented quarterly earnings on Thursday. Net sales from its health care business rose 5% year over year to $1.93 billion, while the segment's net earnings from continued operations decreased 2% to $305 million. P&G noted the deal with Merck KGaA "replaces and improves upon" a joint healthcare venture it had with Teva Pharmaceutical Industries Ltd. that ended in July.
Big players in the pharmaceutical industry are turning away from the more steady revenues of consumer health products and toward the higher risk, higher reward area of novel drug development. That's left the door open for M&A.
Last year, for instance, Sanofi SA sold rights to five over-the-counter brands to fellow French pharma Ipsen SA for €83 million ($88.2 million). Consumer products were also at the core of a $20 billion asset swap between GlaxoSmithKline plc and Novartis AG that began in 2014.
GSK recently bought Novartis out of the resulting consumer health joint venture, paying the Swiss pharma $13 billion for its 36.5% stake.
Pfizer Inc. has also been in the hunt for buyers for its own consumer health business, but has so far found no takers.
By the end of 2017, GSK ranked as the world's largest consumer health company, according to market research firm Euromonitor International. P&G was also a heavyweight, coming in at ninth. Its latest deal reinforces that position, at a time when the Cincinnati-based company is experiencing sluggish growth.
"The majority of our top 15 to 20 markets are turning, so we do have some issues, we do understand them, and we're making additional interventions to address them," P&G's CEO David Taylor said during the company's earnings call on April 19.
Merck KGaA's consumer health business grew 6% between 2015 and 2017, and accounted for almost 25% of drugmaker's total net sales in the latter year. But like many of its peers, Merck KGaA appears more interested in creating branded treatments in lucrative therapeutic areas like cancer and multiple sclerosis.
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. In an April 19 statement, Merck KGaA said the money from its divestiture would mostly go toward paying down that debt.
Per deal terms, P&G will take hold of more than 900 consumer health products and two manufacturing facilities — one in Austria, the other in India. About 3,300 Merck KGaA employees will switch over as well. Notably, Merck KGaA is still consulting work council representatives about the sale of its French consumer health business, which isn't yet part of the transaction.
P&G's stock opened at $75.39 per share on Thursday, down 2.7% from the prior day's adjusted closing price (which was affected by a $0.72 dividend). Merck KGaA's stock, conversely, was up less than 1% Thursday morning.