Reckitt Benckiser gives up on Merck OTC deal, leaving Bayer open shot

Reckitt Benckiser CEO Rakesh Kapoor

British consumer goods giant Reckitt Benckiser indicated Wednesday that bidding for the consumer healthcare unit of Merck ($MRK) had gotten out of hand, and so it decided to step aside. By dropping out it would appear to leave Germany's Bayer as the likely buyer for the unit.

"We are a highly disciplined acquirer with strict return metrics, which we will not break," Reckitt Benckiser CEO Rakesh Kapoor told Reuters in an email. "The consumer health market remains highly fragmented and we will continue to evaluate opportunities that fit both our strategic and financial criteria."

The decision came a day after Bayer reportedly offered to trade its animal health operation to Merck and then top off the deal with cash. Sources told Reuters, which reported the offer, that such an offer would give Bayer the upper hand in the bidding battle. Bayer had nothing to say today.

Reckitt was believed by some to be the best positioned, with the most to gain from the deal. Getting Merck's over-the-counter (OTC) operations would have catapulted it into third place in the consumer healthcare space from its current ranking at 9. It also would have been able to cut a bunch of costs by integrating Merck's products into it own infrastructure and sales organization.

But Bayer CEO Marijn Dekkers has said he wants his company not to be third but first in the OTC arena, which is rapidly expanding around the world. He picked up Dihon Pharmaceutical Group just weeks ago to become a consumer health leader in China. And Dekkers has something that Kapoor does not--an animal health operation.

Merck CEO Ken Frazier has made it clear that Merck either needs to be a top player in the categories it is in or get out, and that neither its animal health nor its OTC business measures up at this point. A deal that trades up in animal health and trades off in OTC would take care of both areas.

- here's the announcement
- read the Reuters story

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