Bayer buys Merck’s OTC arm for $14.2bn

Bayer has agreed to pay $14.2 billion to buy Merck's consumer care division, a move which it says will help it consolidate its place in the global OTC sector.

Alongside this giant transaction, the companies have also agreed a major co-development and co-marketing deal, with Merck paying $1 billion in an upfront payment to buy into Bayer's class of promising new cardiovascular treatments, soluble guanylate cyclase (sGC) modulators. The deal includes Adempas (Riociguat), which is already approved for pulmonary hypertension

The OTC acquisition will give Bayer the global number two position in non-prescription (over-the-counter, OTC) products behind Johnson & Johnson.

The deal is just the latest in a flurry of major mergers and acquisitions deals which is transforming the big pharma sector overnight.

Novartis and GSK unveiled a groundbreaking $16 billion deal just two weeks ago based around a swap of their respective vaccines and oncology units, with Lilly also involved in buying Novartis' animal health unit.

Meanwhile Pfizer has an OTC division which earns around $3 billion a year. The company has just split out its business units into separate financial entities, with a possible divestment of the OTC division and others on the cards – though this would only come if and when Pfizer succeeds in acquiring AstraZeneca.

Divergent business models

The sudden bout of deals is helping companies consolidate their presence in some fields, and exiting others, resulting in a divergence in business model. Merck is parting with its OTC division to focus exclusively on higher risk, higher growth options in prescription medicines, while Bayer believes the more stable but less profitable field of OTC will help balance its conglomerate business strategy.

The Bayer acquisition ends of months of speculation about Merck's OTC division, with Reckitt Benckiser having also been interested in buying the business.

Merck's consumer care business includes top-selling brands such as Claritin, Coppertone and Dr. Scholl's. Sales of the combined businesses in 2013 amounted to $7.4 billion (5.5 billion) with Merck business contributing around $2.2 billion. "We are adding significant scope and earnings power to a business that is already delivering strong margins and stable cash flows," added Dekkers.

"This acquisition marks a major milestone on our path towards global leadership in the attractive non-prescription medicines business," said Bayer chief executive Marijn Dekkers.

Dekkers added that he is also "closely observing" developments in the animal healthcare sector, where Bayer has just been overtaken by Lilly thanks to its acquisition of Novartis' unit.

Links

Novartis and GSK's multi-billion dollar swaps to transform both companies