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Merck KGaA Seeks Consumer-Health Assets to Build Brands

Merck KGaA (MRK) is scouting acquisitions to help rebuild its consumer health business following a restructuring that included a management purge and retreat from several markets, including the U.S. and China.

Merck would buy products in the categories of vitamins and supplements, cold and allergy and pain relievers, Udit Batra, chief executive officer of the consumer health-care division, said in an interview at the company’s Darmstadt, Germany headquarters. Merck isn’t looking for large transactions, he said.

The 90 billion-euro ($120 billion) global consumer health market is growing at a rate of 4 percent to 5 percent, Batra said. Merck wants to have three strong brands with at least a 3 percent market share in about 20 core countries.

“In order to build your business you need to keep your eyes and ears open to buy small brands that consumers already like that are not being focused on,” he said.

Batra, 43, joined Merck in September 2011 from Novartis AG, where he was head of global public health and market access at the vaccines and diagnostics division. At Merck he replaced the top managers and about half of the people who reported to them, and reorganized management into regions instead of by country. Sales grew 3.3 percent over the first three quarters of last year while earnings before one-time costs rose 22 percent.

The majority of research and development spending is now in emerging markets, which are growing at twice the rate of Europe. Merck has exited several countries, including Canada, the U.S. and China, to focus time and money on core markets such as Germany, Poland and India. Merck plans to return to China and the U.S. eventually, though in a “systematic” way, Batra said.

Past Mistakes

“We have a lot of potential in markets where we are already present,” he said. “I would first want to do that justice. This is the mistake we made in the past.”

Russia is the fastest-growing over-the-counter market in the world and offers much potential, with Merck’s sales growing by more than 50 percent in the third quarter from a year earlier. Sales in Indonesia grew by 20 percent and India and Brazil by 10 percent. In comparison, sales in Germany grew 12 percent.

Merck is keeping its eight strongest brands, including the supplement Bion, nasal spray Nasivin, pain ointment Kytta and femibion, a supplement for women. It shuttered the Seven Seas facility in Hull, England in favor of manufacturing plants in Indonesia, Mexico, Spittal, Austria, and Darmstadt.

Consumer health is the smallest of Merck’s businesses, which include Serono pharmaceuticals, Millipore lab equipment and liquid crystals for flat panel displays. In 2012, the unit had 473 million euros in revenue, representing about 4 percent of Merck’s 10.7 billion euros in sales, and accounted for 2 percent of the company’s nearly 3 billion euros in earnings. Merck reports fourth-quarter results on March 6.

“We are very excited about the prospects,” Batra said. “It’s a great business. I can’t see a single reason why we would want to exit it.”

To contact the reporter on this story: Allison Connolly in London at aconnolly4@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net

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