|Merck CEO Kenneth Frazier|
Merck's ($MRK) consumer-goods business sale is about to get real. While talks of a rumored swap for Novartis' ($NVS) animal health and vaccines units have cooled, selloff prospects are heating up: Sources now tell The Wall Street Journal they expect industry heavyweights to put in bids that could surpass $10 billion, and Merck has already received preliminary offers for the business.
As the Journal reports, company officials will start meeting with potential buyers next week, with final bids likely due late next month. Then will come decision time for the drug giant, whose suitors for the business--which includes well-known brands such as Coppertone sunscreen and Dr. Scholl's foot products--could include companies like Britain's Reckitt Benckiser and U.S.-based Procter & Gamble ($PG), industry-watchers have said.
Merck has been weighing its options for the unit since late last year, when CEO Kenneth Frazier said it was time to shape up or ship out. The business, which brought in $1.9 billion in 2013 sales, reaped $1.33 billion of that in the U.S. Worldwide, its market share is comparatively weak at about 1%. That's not enough to compete on a global scale. Indeed, analysts have speculated Merck might unload the unit ever since the company acquired it through its Schering-Plough buyout in 2009.
Big Pharma peers--including Johnson & Johnson ($JNJ), GlaxoSmithKline ($GSK), Novartis, Sanofi ($SNY) and Bayer--are better established in the space. Sanofi has made a recent push to build up its presence, highlighted by its $1.9 billion buyout of U.S.-based Chattem.
But though Merck's piece of the consumer health pie is small, it's still worth plenty. A deal in the $10-billion range could help the company out in its time of need. Merck is bracing for a rocky year amid a sizable restructuring, clinical hardships and competition for top-seller Januvia. Sales hits from Singulair generics are still taking their toll. But assuming Merck used the sale proceeds to repurchase shares, a $10-billion deal could grow EPS by 3.25%, ISI Group analyst Mark Schoenebaum wrote in an investor note.
Sales and spinoffs have recently come into fashion for both ailing and thriving companies alike, with Pfizer ($PFE) and Abbott Laboratories ($ABT) kicking off the party late in 2012 and into early 2013 with their own transactions. Since then, Novartis has embarked on a strategic review of its smaller businesses, while Pfizer and GlaxoSmithKline have both done some internal reorganizing to separate their businesses into more distinct groups.
- read the WSJ piece (sub. req.)
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