Bayer has agreed to acquire
the consumer care business of U.S. pharmaceutical company Merck & Co.,
Inc., Whitehouse Station, NJ, USA, for a purchase price of USD 14.2 billion
(EUR 10.4 billion). "This acquisition marks a major milestone on our path
towards global leadership in the attractive non-prescription medicines
business," explained Bayer CEO Dr. Marijn Dekkers. "At the same time
we are leveraging our capabilities in the cardiovascular therapeutic
area." In a related transaction, Bayer has entered into a global
co-development and co-commercialization agreement with Merck & Co., Inc. in
the field of soluble guanylate cyclase (sGC) modulators, for which Merck &
Co., Inc. will make an up-front payment to Bayer of USD 1 billion, with
substantial additional sales milestone payments.
Significant enhancement of Bayer's consumer care business
The acquisition will give
Bayer the global number two position in non-prescription (over-the-counter,
OTC) products following recently announced consolidations in this highly
attractive and growing healthcare industry segment, and will significantly
enhance Bayer's business across multiple therapeutic categories and
geographies. Merck & Co., Inc.'s consumer care business includes leading
brands such as Claritin™, Coppertone™ and Dr. Scholl's™.
Pro forma sales of the
combined businesses in 2013 amounted to USD 7.4 billion (EUR 5.5 billion) with
Merck & Co., Inc.'s business contributing approximately USD 2.2 billion.
"We are adding significant scope and earnings power to a business that is
already delivering strong margins and stable cash flows," added Dekkers.
"With this transaction,
we are acquiring leading product brands that will make Bayer the OTC leader in
North America and Latin America and also move us into top global positions in
key OTC product categories," said Olivier Brandicourt, CEO of Bayer HealthCare.
"The strong Bayer brand will help to further leverage the already
successful product brands worldwide. We expect particularly strong growth in
key countries outside the U.S. where our superior commercial presence will
drive sales of the combined business." Upon completion of the acquisition,
Bayer is expected to achieve global leadership positions in dermatology and
gastrointestinals, two of the five most important non-prescription health care
product categories, and advance to the number two position in the cold,
allergy, sinus and flu category. Bayer will remain number two in nutritionals
and number three in analgesics.
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The purchase price of USD 14.2
billion includes a payment associated with sales of Claritin™ and Afrin™ in
certain countries where these products are still prescription-only. The
purchase price represents a 2013 pro forma EBITDA multiple of 21x. The
acquisition will be primarily treated as an asset purchase, for which Bayer
expects to receive significant tax savings from the first year after closing.
Bayer also expects the integration of the businesses to generate significant
cost synergies, for example in marketing spend and cost of goods, in the region
of USD 200 million per year by 2017. Revenue synergies from increased commercial
presence and leveraging Bayer's substantial global infrastructure in key growth
regions to roll out the Merck brands ex-US are expected to amount to already
about USD 400 million by 2017. Bayer anticipates one-time costs of
approximately USD 0.5 billion related to executing the transaction and
combining the businesses, primarily in 2014/2015.
Bayer plans to finance the
acquisition with a bridge facility provided by Bank of America, Merrill Lynch,
BNP Paribas and Mizuho, which subsequently will be syndicated to a larger group
of relationship banks. The capital market take-out is planned at a later date
with a combination of senior and hybrid capital instruments. The acquisition is
expected to yield an immediate positive contribution of 2 percent to core earnings
per share already in the first year after closing. The transaction is subject
to approval from the relevant antitrust authorities, with closing expected in
the second half of 2014.
Merck & Co., Inc.'s
consumer care business is a major global OTC Company with strong presence in
North America, the largest OTC market in the world. In 2013, Merck's consumer
care business generated approximately 70 percent of its sales in the US, where
it also holds leading brand positions. The business is primarily comprised of
products in the cold, allergy, sinus & flu, dermatology (including sun
care), foot health and gastrointestinal categories. The most important brands
are Claritin™ (allergy), Coppertone™ (sun care), Dr. Scholl's™ (foot health),
MiraLAX™ (gastrointestinal) and Afrin™ (cold). Merck & Co., Inc.'s consumer
care business has approximately 2,250 employees and is headquartered in New
Jersey (United States). Production is located in Cleveland, Tennessee, United
States; Chatsworth, Georgia, United States; Pointe Claire, Quebec, Canada; and
Shanghai, China. Sun care and foot health research as well as distribution are
based in Memphis, Tennessee, United States. The merged business is to be
headquartered at the Bayer site in Whippany, New Jersey, United States.
Strategic pharma collaboration in the field of sGC modulators
In a related transaction,
Bayer and Merck & Co., Inc. also agreed to enter into a strategic pharma
collaboration in the area of cardiovascular diseases with a focus on sGC
modulation. Cardiovascular diseases represent one of the most significant
therapeutic areas. Despite previous achievements there remains high medical
need, for example, in various diseases such as certain forms of pulmonary
hypertension or heart failure. Novel modulators of the sGC pathway may have the
potential to address this need. However, major development efforts and clinical
programs are required to fully explore the benefits of these novel compounds.
This collaboration brings together two leading companies in this field.
"Merck's expertise and
global presence in the cardiovascular therapeutic area make it a collaboration
party of choice for our sGC programs," said Dekkers. "We truly
believe that this collaboration increases our chances of bringing new medicines
to more patients, in line with Bayer's mission 'Science For A Better
Life'."
"We are now joining
forces in the area of sGC modulation to implement a joint development and
commercialization collaboration that allows both companies to better explore
the medical potential of the novel sGC modulators," said Merck & Co.,
Inc.'s chairman and chief executive officer, Kenneth Frazier.
The collaboration includes
Adempas™ (Riociguat), which is already approved for the treatment of certain
classifications of pulmonary hypertension and is being developed in additional
life cycle indications, as well as vericiguat, an investigational compound that
is currently being developed in two Phase IIb studies in worsening chronic
heart failure. Furthermore, the parties agreed that sGC modulators presently in
earlier stages of research and development may be included in the
collaboration.
Bayer and Merck & Co.,
Inc. will equally share costs and profits from the sGC modulators and implement
a joint development and commercialization strategy. Bayer will lead the
commercialization for Adempas™ in the Americas while Merck & Co., Inc. will
lead the commercialization outside the Americas. For vericiguat and other
potential investigational sGC modulators, Bayer will lead the commercialization
outside the Americas while Merck & Co., Inc. will lead the
commercialization in the Americas. Both companies will have the option to
co-promote Adempas™ and the follow-on sGC modulators in each others'
territories. "This collaboration demonstrates our commitment to sGC
modulators, allowing us to better explore the potential of these promising
cardiovascular compounds," said Brandicourt.
Merck & Co., Inc. will
make payments to Bayer of up to USD 2.1 billion (EUR 1.5 billion), comprising
an up-front payment of USD 1.0 billion (EUR 0.7 billion), and sales milestone
payments of up to USD 1.1 billion (EUR 0.8 billion) related to future
collective sales of certain collaboration compounds including Adempas™.