Commentary

P&G Buys German Vitamin Maker Merck To Bolster Health Care Biz

Procter & Gamble is shelling out $4.2 billion for vitamin and supplement brands such as Femibion, Neurobion, Seven Seas and Bion3 in order to expand its consumer health care business. The acquisition of the consumer health business of Merck KGaA, Darmstadt, Germany — which is active in 44 countries and includes more than 900 products — was announced this morning. The company is the former parent company of Kenilworth, N.J.-based Merck & Co., which is now independent.

The deal will “complement” brands such as Vicks, Metamucil, Pepto-Bismol, Crest and Oral-B, P&G says in a release announcing the deal.

“The deal gives the maker of Crest toothpaste a stable of products with sales growth of 6% in the past two years, double the pace of traditional consumer goods such as razors, diapers and tissues,” write K Oanh Ha and Jeff Sutherland for  Bloomberg

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“P&G is under pressure to spur growth, with activist shareholder Nelson Peltz and others seeking radical change at a time when Amazon.com Inc. and Costco Wholesale Corp. squeeze supplier costs and niche brands lure away consumers,” they continue. “The deal represents ‘a step in the right direction for P&G,’” Bloomberg Intelligence analyst Deborah Aitken tells them.

“The deal is one of the biggest acquisitions in recent years for the Cincinnati giant, which has been struggling with slow growth in key markets and falling revenue in its big Gillette razor business,” Sharon Terlep and Jonathan D. Rockoff report for the Wall Street Journal.

“The Merck KGaA business manufactures over-the-counter products and generates around $1 billion in annual sales from a portfolio of 10 core brands that are sold in more than 40 markets but not the U.S. Its products include vitamins, Femibion supplements for women, Seven Seas cod liver oil and Nasivin nasal decongestant,” they continue.

Merck also “provides a broad range of over-the-counter product remedies to relieve muscle, joint and back pain, colds and headaches as well as products for supporting physical activity and mobility,” Barrett J. Brunsman writes for the Cincinnati Business Courier

“‘We’re viewing this very much as a capability building acquisition and as a talent-building acquisition,’ P&G chief financial officer Jon Moeller told me and other journalists this morning. However, Moeller added that it was too soon to say whether any duplicative jobs would be eliminated,” he continues.

“The deal, expected to close by June 2019, will bolster P&G's $7.5 billion health-care business with strong oral care and gastrointestinal brands with a fast-growing basket of overseas brands doing $1 billion a year in additional business in several over-the-counter categories,” writes Alexander Coolidge for the Cincinnati Enquirer.

“P&G will add 3,500 workers to its worldwide 95,000-member payroll with the acquisition. … Company officials said it was too early to say how many positions might be cut during the integration,” he continues.

“The deal comes just months after P&G conceded a board seat to Nelson Peltz after a lengthy battle. Peltz has pushed for the corporation to shift to the acquisition of smaller brands rather than continuing to rely on its historically key brands such as Gillette and Tide,” writes Natasha Bach for Fortune. “Merck put the consumer health unit on the market last year in order to focus its efforts on prescription drugs

In other news, P&G reported better-than-expected quarterly revenue on Thursday, boosted by strong sales in its beauty, and fabric and home-care businesses,” according to a Reuters report on CNBC. “Net sales for the world's largest consumer products maker by market value rose 4.3% to $16.28 billion, compared to analysts' estimate of $16.21 billion, according to Thomson Reuters I/B/E/S.”

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