Last week, we heard that Merck's consumer unit was bearing down on a sale, with a price of $10 billion-plus. Now, Reuters sources say the deal could be worth up to $12 billion, with several consumer and healthcare companies in on the hunt.
That group includes Novartis ($NVS), previously said to be negotiating a swap of its animal health and vaccines businesses--and perhaps some cash--in return for Merck's ($MRK) consumer unit. Reuters names Bayer as another of the Big Pharma suitors.
Reuters says other shoppers include Procter & Gamble ($PG), the consumer giant, and Reckitt Benckiser, which is considering selling off its pharma business to focus more on its consumer core.
First-round bids came in a few weeks ago, Reuters reports, with a second round of offers due late next month. None of the companies said to be involved would comment for the news service.
Merck is looking to unload its consumer healthcare unit as part of a strategic streamlining of the company, and in that it's far from alone. Strategic reviews are in fashion in Big Pharma, as drugmakers seek to refocus their operations after years of diversification. The deals have also generated cash for share buybacks, a sop for shareholders patient enough to stick around through the industry's patent cliff.
Pfizer ($PFE) kicked off the trend with the sale of several smaller businesses: Capsugel, the capsule maker, for $2.4 billion; its baby-formula unit to Nestlé for more than $11.85 billion; and its animal health business, Zoetis ($ZTS), in a multibillion-dollar spinoff greeted heartily by investors.
Pfizer has since reorganized into three distinct units internally, with an eye to potential split-offs down the road. Novartis is in the midst of analyzing its own smaller businesses for either growth or dismissal, and GlaxoSmithKline ($GSK) has sequestered some of its off-patent and generic drugs into its own separate business with discrete financials.
Merck has been struggling through generic competition for once-blockbuster medications, and as sales of those drugs have plummeted, its pipeline hasn't progressed quite as planned. R&D setbacks have come one after another, weakening its prospects for near-term sales recovery. That appears to be turning around somewhat, with new R&D chief Roger Perlmutter revamping his arm of the company. Meanwhile, Merck has been cutting costs once again, with some 8,500 layoffs planned.
Selling off the consumer business at $10 billion to $12 billion would give Merck's earnings an immediate boost. ISI Group analyst Mark Schoenebaum calculates that earnings would grow by 3.25% to 4.25% with a sale, and he expects the cash to be plowed into stock buybacks.
- read the news from Reuters
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