A Fracturing Industry Is Forcing Merck to Make Touch Choices

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Merck (NYSE:MRK), the second-largest drugmaker in the United States after Pfizer (NYSE:PFE), is looking to narrow its focus and gain scale in the increasingly fragmented consumer and healthcare industry. The latest move the pharmaceutical company has made to stabilize its business amid years of patent expirations and struggles to develop new drugs is fielding offers for its consumer healthcare business, a division that contains Coppertone sunscreen, Dr. Scholl’s foot care, and Claritin allergy medicine. Through individuals familiar with the company’s thinking, Reuters learned that Reckitt Benckiser Group (RBGPY.PK), Procter & Gamble (NYSE:PG), Bayer (BAYRY.PK), and Novartis (NYSE:NVS) are considering making an offer. The process is private, the sources said, but the consumer healthcare products could be worth between $10 billion and $12 billion.

The global consumer health industry is dominated by Johnson & Johnson (NYSE:JNJ), which holds an approximate 4 percent share of the market. But Bayer, GlaxoSmithKline (NYSE:GSK), Novartis, Pfizer, and Sanofi (NYSE:SNY) each have a market share of more than 2 percent. Merck’s market share of about 1 percent share is very small by comparison.

Both Johnson & Johnson and Sanofi have competing products so it is highly unlikely those companies would make an offer. But for Germany-based Bayer, a company looking to expand its consumer products business, Merck’s products would complement its portfolio, which includes the pain medication Aleve and the antacid Alka-Seltzer. Bayer attempted to buy Schiff Nutrition International in 2012, but lost a bidding war with Reckitt, which purchased the British consumer products group for $1.3 billion. Reckitt’s own consumer products business includes Mucinex and Nurofen, and as the company’s chief executive told Reuters last September, the healthcare company not only wants to be a major power in consumer health but has the financial firepower to make the deals necessary to accomplish that goal.

With a range of healthcare products, like Vicks cold and flu medicine and Prilosec heartburn medication, Procter & Gamble could also benefit from Merck’s business. GlaxoSmithKline currently has a low appetite for making acquisitions and will likely not pursue a deal with Merck.

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