Merck ($MRK) has entered the home stretch with its consumer unit sale, and the deal may be even bigger than previous reports have hinted. According to Reuters, the unit could go for close to $14 billion--a number that could climb even higher as front-runners Bayer and Reckitt Benckiser duke it out.
As unnamed sources told the news service, a deal could happen as soon as next week, now that the two contenders have each offered about $13.5 billion for the unit. Both are intent on landing Merck's asset, which could push up the price in the coming days--pushing up Merck's EPS accretion with it, ISI Group analyst Mark Schoenebaum said in a note to investors.
"Merck appears to be getting good value for the business," he wrote, adding that Merck's 2018 earnings could grow by up to 5.25% if it nabs $14 billion from the deal.
An acquisition could have big implications for Bayer and Reckitt, too. Both companies are in the process of building up their consumer health segments: Bayer, whose CEO Marijn Dekkers Monday said is still aiming to become the No. 1 OTC company in the world, picked up Dihon Pharmaceutical Group a couple of months ago to become a consumer health leader in China, and Reckitt beat out Bayer in a 2012 bidding war for Schiff Nutrition. Promises of consumer health growth, and generics-resistant sales, have proved enticing to several drugmakers as of late, with companies like Sanofi ($SNY) and Boehringer Ingelheim originally among the Merck unit's suitors.
But when it comes down to it, Reckitt may have the edge over its Big Pharma rivals, sources told Bloomberg earlier this month. Reckitt--which could leap from ninth place to third in the consumer space with the acquisition--could cut more costs out of a combined company than competitors might be able to, enabling it to afford a larger bid. And with the company weighing a possible spinoff of its struggling pharma unit, the British company's OTC footing could become all the more important.
With noncore asset sales and spinoffs lately delighting investors and analysts alike, Merck is not the only pharma giant to reevaluate its position in the consumer health sphere. Novartis ($NVS) recently considered options for its own unit--and as a result, whichever company scores Merck's consumer business will have to contend with a new Novartis-GlaxoSmithKline ($GSK) joint venture. As part of a larger asset swap, the pair last week announced they would combine their consumer offerings to create a business with about $10 billion in annual sales and the scale to hang with bigger, consumer-focused rivals.
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Editor's note: This story has been updated with a comment from Bayer CEO Marijn Dekkers.