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USA/Germany: Healthcare Business P&G Acquires Merck's Consumer-Health Business for 4.2 Billion Dollars

Editor: MA Alexander Stark

Procter & Gamble agreed to buy Merck’s consumer-health business for $ 4.2 billion to bolster growth, betting that vitamins and decongestants can hasten its comeback. German drugmaker Merck put the the unit up for sale last year as it pumps money into testing new medicines.

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P&G acquires Merck's consumer health unit
P&G acquires Merck's consumer health unit
(Source: Bloomberg Finance LP)

Cinncinati/USA (Bloomberg) — The deal gives the company a range of products with sales growth of six percent in the past two years, double the pace of traditional consumer goods such as razors, diapers and tissues.

P&G is under pressure to spur growth, with activist shareholder Nelson Peltz and others seeking radical change at a time when Amazon and Costco Wholesale squeeze supplier costs and niche brands lure away consumers.

The deal represents “a step in the right direction for P&G,” said Deborah Aitken, an analyst with Bloomberg Intelligence.

Merck’s Seven Seas cod liver oil and Bion3 supplements had reportedly attracted interest from rival Reckitt Benckiser Group as well as drugmakers Mylan and Perrigo. At P&G, health makes up 12 % of sales, with only a few brands such as Vicks pastilles, Prilosec heartburn tablets and Pepto-Bismol for upset stomachs.

The deal values Merck’s business at 4.2 times annual sales — a fair price, according to Aitken. Others in the field, such as Pfizer, have sought multiples of five times sales for consumer-health operations, she said.

The acquisition will improve P&G’s geographic scale, the company said in a statement Thursday. Merck’s $ 1 billion business provides a range of products for muscle, joint and back pain, colds and headaches, according to the statement.

Several drugmakers have been considering selling their consumer divisions. While those grow at attractive rates for consumer goods companies, they typically have far lower profit margins than the prescription pharmaceutical business. Novartis sold its interest in a consumer joint venture to partner Glaxo Smith Kline, gaining cash to invest in innovative drugs. Pfizer is reviewing its options after the sale of its consumer-health business fizzled in March, with potential suitors such as Reckitt bowing out.

Merck CEO Stefan Oschmann said the divestment is an “important step in our strategic focus on innovation-driven businesses.” The company is separate from US-based Merck & Co.