Bayer completes Merck acquisition to create new consumer OTC powerhouse
LEVERKUSEN, Germany – Bayer on Wednesday announced it has completed the acquisition of the consumer care business of the U.S. pharmaceuticals group Merck. "This acquisition is a milestone for Bayer, and we intend to continue the expansion of our attractive over-the-counter business both through organic growth and bolt-on acquisitions,” stated Bayer CEO Marijn Dekkers.
Bayer paid a purchase price of $14.2 billion, less certain contingent amounts held back that will be payable upon antitrust approvals in Mexico and the Republic of Korea. Integration of the acquired business has been successfully initiated. The combined consumer care business is headed by Erica Mann, member of the Bayer HealthCare Executive Committee and responsible for the Consumer Care division.
The acquisition significantly enhances Bayer's over-the-counter business across multiple therapeutic categories and geographies. Pro forma sales of the combined businesses in 2013 amounted to $7.4 billion, with Merck’s business contributing approximately $2.2 billion. The acquisition will give Bayer the global No. 2 position in non-prescription medication — behind the combined OTC businesses of Novartis and GlaxoSmithKline, following the completion of their announced joint venture in 2015, and ahead of the world's previous industry leader Johnson & Johnson.
Within a highly diverse industry, Bayer is now the OTC leader in North and Latin America and the leader in dermatology and gastrointestinal treatments. The company has advanced to the No. 2 position in the cold, allergy, sinus and flu category and remains the No. 2 in nutritionals and No. 3 in analgesics.
The consumer care business acquired from Merck is primarily comprised of products in the cold, allergy, sinus & flu; dermatology (including sun care); foot health; and gastrointestinal categories. The most important brands are Claritin (allergy), Coppertone (sun care), MiraLAX (gastrointestinals), Afrin (cold) and — in North and Latin America — Dr. Scholl’s (foot care). These brands complement Bayer's existing OTC portfolio, which includes brands such as Aspirin and Aleve in the analgesics category; dermatology products including Canesten and Bepanthen/Bepanthol; nutritional brands such as Supradyn, One A Day, Berocca, Elevit and Redoxon; antacids such as Rennie and Talcid; and cough-and-cold products such as Alka-Seltzer Plus and White & Black.
The purchase price of $14.2 billion includes a payment associated with sales of Claritin and Afrin in certain countries where these products are still prescription-only.
Bayer also expects the integration of the businesses to generate significant cost synergies — particularly in marketing spend and cost of goods — in the neighborhood of $200 million per year by 2017. Revenue synergies from increased commercial presence and leveraging Bayer’s global infrastructure in key growth regions to roll out the Merck brands ex-US are expected to amount to approximately $400 million by 2017. Bayer anticipates one-time costs of approximately $500 million for executing the transaction and combining the businesses, primarily in 2014 and 2015. The acquisition is expected to yield a positive contribution of 2% to core earnings per share already in the first year after closing.
Approximately 2,000 employees from Merck and 8,800 from Bayer will be brought together under one roof in Bayer's new consumer care business. The integration process is off to a successful start with the decision on appointments to the top two management levels. The third management level is expected to be completed in autumn of 2014. "Our goal is to combine the best people and capabilities of both organizations," stated Mann. The management team of the merged businesses will be located at existing Bayer sites in Whippany, N.J., United States; Basel, Switzerland; Shanghai, China; Leverkusen, Germany; and Singapore.
The strategic pharma collaboration between Bayer and Merck in the field of soluble guanylate cyclase (sGC) modulators also comes into effect simultaneously. Bayer plans to strengthen its development options in the cardiology business with the global co-development and co-commercialization agreement, which has already been approved by the relevant antitrust authorities. Merck will make payments of up to $2.1 billion to Bayer. These include an up-front payment of $1 billion, which is to be paid shortly after completion, as well as revenue-based milestone payments of up to $1.1 billion for future combined sales of certain jointly developed substances, including the pulmonary hypertension treatment Adempas (riociguat).