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Merck could get $10 billion for its consumer health products

Posted on 14 February 2014

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Merck & Co.'s effort to sell its portfolio of well-known consumer brands including Coppertone sun screen and Claritin allergy pills is kicking into high gear, with consumer and health care giants expected to put in bids that could top $10 billion, according to people familiar with the matter.

Merck, which has said publicly it is exploring options for the business, has already received preliminary offers for it, the people said. Merck officials will begin meeting with possible buyers next week, and final bids will likely be due late next month, one of the people said.

Analysts have speculated ever since Merck inherited the consumer business in its 2009 acquisition of Schering- Plough that the health care giant would unload it in some fashion, perhaps through a sale or joint venture. But after recent talks for a swap of the business for Novartis AG's vaccine and animal-health units cooled, Merck turned its attention toward an outright sale, according to people familiar with the matter. Merck Chief Executive Ken Frazier has often said the consumer business is heavily concentrated in North America and doesn't have sufficient global scale, and that the company must figure out whether it is better off under different ownership.

In January, Merck said it would explore strategic options for both its consumer-care and the animal-health units. The company said it expects to complete the process and take action, if any, by year-end.

Merck reported global consumer-care sales of $1.9 billion for 2013, or about 4% of total company revenue of $44 billion. The U.S. accounted for $1.33 billion of the consumer unit's sales total, with international markets contributing $568 million. The biggest product in the portfolio is an over-the-counter version of allergy drug Claritin, which had sales of $471 million last year. The division also includes MiraLAX constipation medicine and Afrin nasal decongestant, as well as Dr. Scholl's foot-care products and Lotrimin and Tinactin antifungals.

The business has more than $550 million of earnings before interest, taxes, depreciation and amortization, the person familiar with the matter said. Past deals have valued such assets at multiples approaching 20 times Ebitda, which would give Merck's consumer business a price tag exceeding $10 billion.

Merck has been coping with an aging pipeline and competition for its top-selling product, Januvia. The diabetes drug's world-wide sales in 2013 were $4 billion, down 2% from the year earlier. Merck has suffered several setbacks trying to develop new drugs. As a result, Mr. Frazier has announced plans to cut 20% of the company's workforce and named a new research and development chief, Roger Perlmutter, who is restructuring the company's laboratories.

While the consumer business represents a relatively small chunk of a company that has a market value of more than $ 160 billion, selling it would be a milestone in Merck's effort to concentrate on therapeutic areas where it feels it is strongest, including drugs for cancer and diabetes as well as vaccines.

It would also represent a relatively big takeover at a time when deals that measure in the double-digit billions are proving few and far between.

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