The Procter & Gamble Company PG, commonly known as P&G, entered into an agreement to acquire the consumer-health business of Germany-based Merck KGaA for approximately 3.4 billion euro ($4 billion). Per the terms, P&G will also acquire a 51.8% stake in India-listed Merck Ltd. The deal is expected to close during the 2018/19 fiscal year.
Merck KGaA’s $1-billion consumer health business provides a wide range of over-the-counter (OTC) products for pain relieving products as well as for supporting physical activity and mobility. The business grew 6% over the past two years. The drug company is selling its consumer health business to focus more on its higher-margin pharmaceuticals business.
Buyout Benefits
The addition of Merck KGaA’s differentiated as well as physician-supported brands will enhance P&G's existing consumer health care capabilities and brands such as Vicks, Pepto-Bismol and Oral-B. It is expected to boost the company’s brand portfolio and category footprint.
It will also expand P&G’s geographic footprint as Merck KGaA’s consumer health business is active in 44 countries and includes more than 900 products.
P&G believes that the addition of Merck KGaA’s products will provide strong health care commercial and supply capabilities, deep technical mastery and proven consumer health care leadership.
Termination of PGT JV
Importantly, the acquisition of Merck KGaA’s consumer health business replaces P&G’s joint venture with Teva Pharmaceutical Industries — PGT Healthcare joint venture. This joint venture delivered disproportionate revenues and earnings growth and strengthened presence in more than 50 countries.
After a recent review, Teva and P&G decided to terminate the venture as their priorities and strategies were no longer in sync.
P&G's shares have lost around 11.4% in the last six months while its industryfell 4.5%. Earnings estimates for fiscal 2018 fell 0.2% over the last seven days. Nevertheless, the deal is expected to contribute at a time when the company is struggling with sluggish growth in global markets.