Sales of consumer health businesses, once highly sought after, seem to be getting tricky. Reports say that Nestle has stepped back as leader in a deal to buy Merck KGaA’s consumer businesses and Pfizer is said to have only two interested parties, GlaxoSmithKline and Reckitt Benckiser Group, after others decided to pass on the deal.
A month ago, reports suggested Nestle had become the lead bidder for Merck’s unit ahead of other interested parties, including consumer focused Reckitt Benckiser. However, citing unnamed sources on Friday, Reuters reported that Nestle had backed off over Merck’s expectation that the unit should bring up to 20 times core earnings sales, a measure that would put the price at about €4 billion ($4.99 billion). The unit does about $1 billion a year in sales.
A spokesman for Merck told Reuters “the process of evaluating options for our consumer health business is well on track.” Nestle declined to comment.
Besides price, Nestle was thought to be influenced by activist investor Dan Loeb, whose Third Point fund last year made a $3.5 billion investment in Nestle. Loeb has pushed the Swiss company toward investing in other high-growing areas like pet care and bottled water.
Reckitt Benckiser, a potential back-up bidder, is said to be more interested at this point in buying Pfizer's consumer business.
Bloomberg, citing unnamed sources, indicated today that both Nestle and Johnson & Johnson have dropped out as potential bidders for Pfizer’s consumer unit, leaving GlaxoSmithKline and Reckitt Benckiser to fight over a business that is projected to cost $15 billion to $20 billion. The deadline for non-binding bids was Thursday and final bids are expected in a few weeks.
Pfizer CEO Ian Read last year said he was interested in offloading the consumer health business, a move that would raise cash for investing in higher growth areas. He said Pfizer would look at all options, including an asset swap or a spinoff, “depending on how we create maximum value.”
Bloomberg reported that potential buyers had some concerns about the consumer unit's flat sales at a time when new competitors, like online retailers, might be looking to get into the game. Pfizer last week reported full-year 2017 earnings in which the consumer business saw sales that were up just 2% for the year at $3.47 billion and flat in the fourth quarter at $950 million.
A spokeswoman told Bloomberg that Pfizer is still considering all its options for the consumer unit, including a swap or a spinoff, but also might just hold onto it. She said a decision will be made in 2018.