P&G to Buy German Merck's Consumer Health Unit for $4.2 Billion


Procter & Gamble Co. has agreed to acquire the consumer health business of German Pharmaceuticals Company Merck KGaA for about 3.4 billion euros (or $4.2 million in cash) as reported by the companies on Thursday. Among the top brands included in the purchase are Seven Seas, Neurobion, Femibion and Kytta.

The Merck division has been for sale for several months, and the price P&G announced suggests Merck lowered its asking price from almost $5 billion. "This deal makes sense for P&G on two fronts", Matthew Oster, head of consumer health research at Euromonitor, tells Nutritional Outlook.

It also provides P&G with strong health care commercial and supply capabilities, deep technical mastery and proven consumer health care leadership that will complement P&G's existing consumer Health Care capabilities, with brands such as Vicks, Metamucil, Pepto-Bismol, Crest and Oral-B.

The price still implied a valuation of 4.7 times sales and about 19 times operating profit for the business, at the high end of recent deals seen in the sector, Morgan Stanley analyst Vincent Meunier said.

"This will help (Merck) focus on its pharma unit and refurbish its pipeline", he said.

P&G said that the acquisition will replace and improve upon the joint venture of PGT Healthcare and Teva Pharmaceutical Industries which will be scrapped on 1 July 2018, subject to regulatory approvals. 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.

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It would issue guidance for this year to reflect the sale of the consumer healthcare business when it publishes first-quarter financial results on May 15, it said in presentation slides.

P&G shares rose 1.3 percent in post-market trading on Wednesday in NY after shifting its third-quarter earnings report to Thursday morning from an initial plan to release results on Friday.

As part of the transaction, it is contemplated that approximately 3,300 employees, mainly from consumer health, will transition to P&G upon completion of the transaction.

A final deal with P&G on Merck's French consumer health business has yet to be devised out with the labour representatives however, that would not change the overall price decided with P&G.

Merck said the transaction will be executed through the sale of Merck's shares in a number of legal entities as well as various asset sales.