In the battle between global consumer-health companies for a multi billion dollar foot-care, allergy and sun-tan lotion business, Reckitt Benckiser Group Plc has advantages that rivals will be hard pressed to match.
The maker of Durex condoms is considered the frontrunner to buy Merck & Co.’s over-the-counter health business because it would be able to generate the most cost savings and have fewer antitrust issues than competitors, people familiar with the matter said. Reckitt Benckiser is facing off against companies including Novartis AG, Bayer AG and Sanofi and final, binding bids are expected on April 16, said the people, who asked not to be identified because the process is private.
The Merck unit, which makes Coppertone sunblock and Claritin allergy medicine, may fetch $10 billion to $12 billion, the people said. That would be Reckitt Benckiser’s biggest deal since it was formed in 1999. Reckitt Benckiser may face fewer antitrust issues than Sanofi if it’s successful, the people said. Sanofi already owns allergy medicine Allegra, for instance, and would have the two of the biggest allergy drugs were it to acquire the Claritin maker, one of the people said.
Reckitt Benckiser has a history of fighting to the finish. In 2012, the company made a surprise counterbid for Schiff Nutrition International Inc. for $1.4 billion, topping an agreed offer from Bayer. The German company declined to raise its offer for Schiff, saying the price would have been too high.
Reckitt Benckiser dropped 1 percent to 4,745 pence in London trading today. Merck fell slightly to $55.04 in New York.
Acquiring the Merck unit would make Reckitt Benckiser the third-biggest global seller of consumer-health products, up from number nine currently, Sanford C. Bernstein estimates. Since taking over from Bart Becht in 2011, CEO Rakesh Kapoor has grown Reckitt Benckiser’s consumer-health division through acquisitions to offset slowing growth at its household-cleaning unit.
In the past, Reckitt Benckiser has been willing to pay a premium to expand the health unit, its fastest-growing business, which increased net revenue 27 percent last year. The company ended up paying 28 times earnings before interest, taxes, depreciation and amortization for Schiff, compared with 18 times Ebitda in a survey of similar deals at the time.
More recently, Reckitt Benckiser agreed in March to acquire the K-Y brand of sexual lubricants from Johnson & Johnson for an undisclosed figure. The company is making “excellent progress” with its recent acquisitions, which also include health-care assets in China and Latin America, Kapoor said in a February interview.
Reckitt Benckiser’s health segment accounts for more than a quarter of the company’s 10 billion pounds ($16.6 billion) in revenue and the Merck brands would increase that share to more than 35 percent, according to Bernstein estimates.
Spokesmen for Merck, Reckitt Benckiser, Bayer, Sanofi and Novartis declined to comment on the auction.
Drugmakers have been spinning off or selling businesses that they deem too small or slow-growing in order to focus on new drugs and building up market-leading divisions. Merck’s consumer-health sales dropped 3 percent last year to $1.9 billion, out of total sales of $44 billion. Nearly a quarter of the unit’s revenue comes from over-the-counter sales of Claritin, data compiled by Bloomberg show.
Merck decided to put that business and its animal-health unit under review last year in order to allocate more capital to new drugs like its immune system-based cancer medicine, CEO Ken Frazier has said.