In the latest deal in the pharmaceutical space, Germany-based Bayer is acquiring Merck's consumer care business, which includes well-known brands including Claritin, Afrin and Coppertone, for $14.2 billion.
The deal means Bayer will get a list of well-known U.S. brands that sell at pharmacies, grocery stores and other retail outlets with the hope of expanding sales to a broader global clientele. While these Merck brands are already sold around the world, the bulk of sales are still U.S.-based.
The latest marriage in the drug sector follows last month's three-way $28.5 billion tie-up involving Novartis, GlaxoSmithKline and Eli Lilly. It also comes amid U.S.-based Pfizer's ongoing $106 billion takeover attempt of British drugmaker AstraZeneca. That potential mega-deal has yet to be consummated as AstraZeneca says Pfizer's sweetened deal is still insufficient.
In addition, billionaire hedge fund manager Bill Ackman recently teamed up with Valeant Pharmaceuticals for a hostile takeover attempt of Botox-maker Allergan in a deal estimated at $46 billion — another deal that is far from a sure thing.
What the deals have in common are a push by pharmaceutical and health care companies to grow their businesses via a strategy of focusing on fewer key lines of business in which they have heft, large market share and a leadership position. The goal: focus on a handful of "core diseases" to gain scale and unlock shareholder value.
"The deals are more strategically focused," says Megan Neuburger, an analyst with Fitch Ratings. "We are seeing a lot divestitures, spinoffs and swaps of different assets, which is pretty creative. Companies are looking for bigger footprints, better pricing power and better geographic exposure."
Bayer, for example, said Tuesday it wants to beef up its brand offerings of over-the-counter consumer care products. That trend was also evident in last month's three-way deal. Novartis is now more focused on cancer, Glaxo on vaccines and Eli Lilly on animal health. If Ackman is successful, the combination of Valeant and Allergan would create a huge, dominant global eye-care and skin-care business.
Bayer summed up the deal this way:
"Merck Consumer Care is a strong business with a portfolio of well-established product brands, such as Claritin, Afrin and Coppertone, that are leaders in their respective categories," said Dr. Marijn Dekkers, Bayer Chairman of the Board of Management. "The combination of Merck Consumer Care's complementary portfolio of products and geographic reach with Bayer's will create a global consumer care business better positioned to serve consumers around the world."
Merck said the sale strengthens it financially and allows it to focus its energies on the discovery and sale of new drugs.
"The sale of our consumer care business is part of our efforts to ensure that assets within our portfolio align with our core strategy, have industry-leading potential and generate long-term shareholder value," Kenneth C. Frazier, chairman and chief executive officer of Merck, said in a statement. "By unlocking value in Merck Consumer Care, we're able to further our goal of being the premier research-intensive biopharmaceutical company through targeted investments that strengthen our product portfolio and enhance our pipeline."
Merck expects after-tax proceeds from the sale of its consumer care business to be $8 billion to $9 billion. The company said it will use the after-tax proceeds to fund those areas within its business that represent the highest potential growth opportunities.
Merck expects to close the sale in the second half of 2014, subject to regulatory approvals.
The deal also includes a worldwide clinical "collaboration" to market and develop Bayer's portfolio of soluble guanylate cyclase (sGC) modulators. This includes Bayer's Adempas (riociguat), a drug approved to treat pulmonary arterial hypertension and the first and only drug treatment approved for patients with chronic thromboembolic pulmonary hypertension, Merck said in a statement.
The collaboration also includes clinical development of vericiguat (BAY102), which is currently in Phase 2 trials for worsening heart failure, as well as opt-in rights for other early-stage sGC compounds in development at Bayer. Merck will in turn make available its early-stage sGC compounds under similar terms. In return for these broad collaboration rights, Bayer will receive a $1 billion up-front payment with the potential for additional milestone payments upon the achievement of agreed-upon sales goals.
Shares of Merck closed down 2.6% to $57.11.