Reckitt Benckiser is officially bowing out of the race for Pfizer’s consumer health unit, paving the way for GlaxoSmithKline to make a move.
Wednesday, the British consumer giant said it closed talks with Pfizer, which centered on just one piece of the unit. Reckitt, as well as GSK, had already this week submitted final offers, according to the Financial Times.
Reckitt CEO Rakesh Kapoor, who stressed that “we always approach inorganic growth opportunities in a ... financially responsible manner,” said in a statement that “an acquisition for the whole Pfizer consumer health business did not fit our acquisition criteria and an acquisition of part of the business was not possible.”
Industry watchers questioned whether RB could afford to swallow the entire unit, given that its £13.2 billion buy of baby food maker Mead Johnson isn’t that far in the rearview mirror. And other recent hardships for RB, such as a cyberattack and a sales slowdown, meant that when Pfizer revealed in October that it was weighing a sale, the timing was less than ideal.
Indeed, investors cheered the company’s decision to back off, sending shares up by as much as 6.7%, Bloomberg noted. And GSK shareholders weren’t thrilled to become the auction favorite; they sent shares south by as much as 1.5%.
There’s precedent for their skepticism. After all, the last time RB dropped out of the running for a Big Pharma consumer unit, the eventual buyer struggled post-buy. That was Bayer, which dished out $14.2 billion for Merck’s OTC portfolio back in 2014 and is still having problems making that buy pay off. For 2018, the German pharma recently guided to a single-digit-percentage earnings decline before special items.
And some GSK critics have never approved of the company’s focus on low-margin consumer health, which it strengthened in a 2015 asset swap that sent its oncology assets to Novartis. Others have simply worried that a Pfizer consumer health buy would put the company’s dividend at risk.
New CEO Emma Walmsley—who came to the company’s top position this time last year after serving as Glaxo’s head of OTC—has stressed the unit’s “great track record ... of progress” and history of integrations.
Meanwhile, at least one analyst thinks Pfizer should hang onto the unit and revisit a sale at a later date, considering that store-brand generic alternatives and online sales from retailers such as Amazon are currently pouring the pressure on OTC drugmakers.
The “brand cachet” of products such as Pfizer’s Advil or Centrum “is being eroded,” Suntrust analyst John Boris wrote in a note seen by Bloomberg. “The margins are there but the question is, are you going to be able to grow the franchise?”