FRANKFURT • Procter & Gamble (P&G) has agreed to acquire Merck's consumer health unit for €3.4 billion (S$5.5 billion), giving it vitamin brands such as Seven Seas and greater exposure to Latin American and Asian markets.
The maker of Pampers diapers and Gillette razors said the deal would help it expand its portfolio of consumer healthcare products, which include Vicks cold relief.
The Merck unit includes vitamin brands Femibion and Neurobion.
The deal follows GlaxoSmithKline agreeing to buy Novartis out of their consumer healthcare joint venture for US$13 billion (S$17 billion) after dropping its pursuit of Pfizer's consumer unit.
Pfizer has struggled to divest the business for as much as US$20 billion, after Reckitt Benckiser dropped out last month and Johnson & Johnson stepped away in January.
Prescription-free remedies offer stable sales owing to customers' brand loyalty, albeit at lower margins than pharmaceuticals.
The purchase price for Merck's business suggests that the German company climbed down from price demands of as much as €4 billion, which sources said had deterred initial suitors.
But intense price competition online, mainly from Amazon, as well as cheaper store-brand products have weighed on profits in the United States and other Western markets.
US-based P&G last year derived 12 per cent, or US$7.5 billion, of group sales from healthcare products, including Oral-B toothbrushes and toothpastes.
The purchase price for Merck's business suggests that the German company climbed down from price demands of as much as €4 billion, which sources said had deterred initial suitors such as Nestle.
Morgan Stanley analyst Vincent Meunier said the price still implied a valuation of 4.7 times sales and about 19 times operating profit for the business, at the high end of recent deals in the sector.
"This will help (Merck) focus on its pharma unit and refurbish its pipeline," he added.
Merck said it fetched a multiple of about 19.5, above recent industry transactions and based on an adjusted "economically transferred" earnings before interest, taxes, depreciation and amortisation of €173 million last year.
The proceeds would allow it to reduce debt faster, giving its businesses, which include chemicals, pharmaceuticals and lab equipment, more flexibility, although it ruled out acquisitions worth more than €500 million this year.
P&G also announced it will split up PGT Healthcare - its consumer care joint venture with Teva - on July 1, saying strategies were no longer aligned. PGT accounts for nearly all of P&G's personal healthcare sales outside of the US.
Teva said the terms of the agreement to terminate the joint venture with P&G would not be disclosed and the dissolution was amicable.
Merck said the divestment of its consumer health business did not change its goal of keeping net sales of its established prescription drugs, such as cancer treatment drug Erbitux, organically stable until 2022.
About 3,300 Merck employees could move to P&G upon completion of the transaction, which is expected by the fourth quarter.
As part of the deal, P&G will buy a majority stake in the German company's Indian consumer health business, Merck Ltd, and subsequently make a mandatory tender offer to minority shareholders.
A final agreement with P&G on Merck's French consumer health business has yet to be worked out with labour representatives, but that will not change the overall price agreed with P&G.