Bayer offers to swap cash and animal health unit for Merck's consumer healthcare

30 Apr 2014

German healthcare major Bayer AG has offered to swap its animal health unit and also pay some cash in exchange for Merck & Co's consumer healthcare business, Reuters yesterday reported, citing people familiar with the matter.

The news comes a day after British consumer goods company Reckitt Benckiser Group Plc confirmed media reports that it was in talks to buy Merck's consumer health business. (See: Reckitt Benckiser confirms bidding for Merck & Co's consumer health business)

Bayer and Reckitt Benckiser are among the final contenders for the Merck & Co's consumer healthcare business, the report added.

According to analysts, investors were looking for Merck to restructure and perhaps sell off non-pharmaceutical units.

After conducting a review, New Jersey-based Merck had hired Morgan Stanley in February to analyse alternatives for both its consumer and animal health businesses (Merck & Co mulls sale of consumer healthcare, animal health businesses).

Media reports had earlier said that among a range of options it has considered for the consumer unit was swapping the business in exchange for the animal health and other units of its Swiss rival Novartis AG.

But since such a move is unlikely since the complexity of valuing different businesses is enormous, and may raise anti-trust issues, Merck is exploring an outright sale of its consumer unit, the report said

For its larger animal health businesses, Merck may spin-off the unit just like Pfizer did last year by spinning off its animal health unit as a separate publicly-traded company called Zoetis (Pfizer to spin-off rest of animal health unit Zoetis to shareholders).

Merck's animal health unit is the world's second-largest after Zoetis with 15.5-per cent market share and 2013 sales of $3.4 billion.

Reuters had on Saturday reported that Merck was in the final stages of selling the consumer business for close to $14 billion and the price could go higher in the final days of bidding.

Merck's consumer healthcare unit is best known for its allergy medicine Claritin, Coppertone sunscreen protection range, Dr Scholls footcare products, constipation treatment MiraLax, Afrin nasal decongestant, Lotrimin and Tinactin antifungals, and Oxytrol – the first over-the-counter treatment for overactive bladder in women.

Merck's profit declined last year due to generic competition to its top-selling drug Singulair, and an inability to introduce new drugs after research setbacks. It has been axing thousands of jobs even as it looks to boost demand for existing products to overcome the loss of revenue from Singulair Maxalt and Temodar.

Last year it sold some of its active pharmaceutical ingredients to Aspen Pharmacare, South Africa's biggest pharmaceutical company.

Reckitt Benckiser owns over-the-counter medicines, including Disprin and Strepsils throat lozenges, Mucinex cough syrup, Gaviscon antacid, pain-relief medication Nurofen and the international rights for the Scholl foot care business.

A deal with Merck would catapult Reckitt Benckiser from the ninth place to the third in the global consumer health industry.

Bayer, which is currently evaluating the prospects of a sale of its plastics unit worth around $10.8 billion (Bayer mulls selling plastics unit worth $10.8 bn), has a large animal health division that produces and distributes around 100 different animal health and care products for farm and companion animals worldwide.

Bayer Animal Health Division manufactures anti-infectives, insecticides, parasiticides, sedatives, nutritional supplements, vaccines, and other pharmaceuticals for companion and farm animals. Major products include flea and heartworm treatment Advantix and Advantage, and anti-infective Baytril.

The division has two main production sites, and sells its products in more than 50 locations in roughly 120 countries and posted sales of $1.8 billion in 2013.