Ready to step up M&A, Bayer could target big game like Pfizer's OTC unit, Zoetis

Bayer's Werner Baumann

Bayer knows it needs more M&A if it wants to keep up in the rapidly consolidating OTC and animal health businesses. But it's not just looking for bolt-on deals.

Expect the German drugmaker to seek a whopper deal in the next few years, sources told Reuters. That could include a pact for Pfizer's ($PFE) consumer health business or Zoetis ($ZTS), the animal health leader that the drug giant spun off in 2013.

Bayer HealthCare chairman Werner Baumann "won't hesitate to do a deal if it fits," one banker told the news service. And Baumann has experience nabbing big targets for the Leverkeusen-based company; he and finance chief Johannes Dietsch were "the driving force" behind last year's $14.2 billion deal for Merck's ($MRK) consumer health unit, the banker said.

Bayer consumer health divisional head Erica Mann

Bayer has been pretty quiet on the dealmaking front since that transaction, instead taking time to pay down the €19.3 billion in net debt that it tallied at the end of September. "We are working very hard to do that," its consumer health divisional head, Erica Mann, recently told Reuters.

It's unclear how much time Bayer will have to make a move before its pool of options constricts, though. Plenty of companies are vying for position in the OTC field, and Mann figures Bayer needs to be in the top three to stay relevant.

And Bayer won't be alone in eyeing the Pfizer castoffs industry watchers expect in the wake of its megamerger deal with Allergan ($ACT). OTC specialist Reckitt Benckiser--which went up against Bayer in bidding for the Merck assets--has also said it would be interested in Pfizer's business.

It's a similar situation on the animal health front, where a raft of consolidation moves has left Bayer off the leaderboard. Last year, Bayer missed out on Novartis' ($NVS) animal health unit, which went to Eli Lilly's ($LLY) Elanco, and Sanofi ($SNY) recently entered exclusive talks to ship its Merial division to Boehringer Ingelheim. This summer, with rumors brewing about a possible Bayer-Zoetis tie-up, the German company said not to expect it to put up a bid. After all, it already had its hands full digesting the Merck deal, dealing with its debt and spinning off its plastics unit, Covestro.

Luckily for Bayer, though, no one has stepped in to nab Zoetis in the interim. While Valeant ($VRX) was once considered a potential buyer, it's now sidelined from dealmaking as it deals with allegations about its business practices, suffering sales in its key dermatology business, a stock price in the doldrums and heaps of unwanted political attention and pressure over its price-hike strategy.

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