Bayer/Merck consumer health
Deal size: $14.2 billion
Date announced: May 6, 2014
Through the $14.2 billion acquisition of Merck & Co.’s consumer health business, Bayer’s then-CEO Marijn Dekkers was aiming for the German conglomerate to become the world’s over-the-counter leader.
At that time, the argument sounded plausible: Established OTC medicines and consumer healthcare products are steady earners without the risks of prescription drugs. And Bayer wasn’t Merck's sole suitor, either; it won the deal after Reckitt Benckiser unexpectedly dropped out.
Scale: Bayer may have scored there. But the franchise didn’t offer the stability Bayer wanted. Only four years after wrapping up the acquisition, two of its star product lines—sunscreen brand Coppertone and foot care drug Dr. Scholl’s—ended up on the chopping board amid a major restructuring. And when Bayer announced that move, it also divulged a €2.7 billion ($3.0 billion) write-off covering the Merck buy and a separate purchase of Chinese company Dihon Pharmaceutical.
“This implies that the business has been very poorly run since acquisition, or Bayer overpaid for this asset … or probably both,” Bernstein analysts wrote in a note to clients last December, noting that the purchase price was about 6.5 times as large as the unit's sales.
Coppertone is a strong brand in the U.S., standing as the No. 3 player with 13.6% market share, the analysts noted. However, sales have been declining for four continuous years. Bayer unloaded that product portfolio to Beiersdorf in May 2019 for $550 million.
Dr. Scholl’s, for its part, went to Yellow Wood Partners for $585 million. Despite its position as the leading foot care brand in the U.S., Dr. Scholl's had continued its suffering through 2018, when sales dropped 1.7% at unchanged currencies to €198 million ($218 million).
Several other OTC brands Bayer highlighted in its 2014 deal announcement weren’t much better. For example, allergy solution Claritin dropped 6.3% on an adjusted basis to €516 million ($567 million) last year.
In a statement to FiercePharma, Bayer admitted that the Merck deal “hasn’t fulfilled our growth and value creation expectations.” It pointed to the lackluster performance from emerging markets, as well as Merck’s previous lack of investment behind key brands.
But Bayer insisted that “the acquisition continues to be the right decision as we’ve secured a strong position in important markets, e.g. in the U.S., and in important categories, such as allergy and cold.”
Bayer isn't alone in its consumer health troubles—or its move to hive off pieces of that business. In fact, 2018 marked a pharma exodus from consumer health, which is under increased competition and pricing pressure from online sales.
Novartis, Merck KGaA, Bristol-Myers Squibb and Pfizer each sold off all or pieces of their consumer businesses that year. And GlaxoSmithKline, which took full control of a former Novartis consumer joint venture, immediately formed another one with Pfizer, aiming to prep it for spinoff in three years.
The timing of the industrywide OTC decline was also unfortunate for Bayer. The company had loaded up on debt to buy crop science player Monsanto for $63 billion; as of the end of 2018, Bayer’s debt burden stood at €35.7 billion. That acquisition carried over a whole different sort of problem that’s featured as a separate entry in this report.