Published on : Apr 20, 2018
The multi-national consumer goods corporation Procter & Gamble Co. (P&G) is gearing for mega acquisitions to make up for the continuing losses in its market share. In a bid to broaden its portfolio of healthcare brand, the U.S.-based consumer giant has on April 19, 2018 agreed to buy consumer health business from the German multinational pharmaceutical and life sciences company Merck KGaA for 3.4 billion euros (US$4.2 billion). Acquiring the business will enable the Cincinnati-based company broaden its portfolio of consumer healthcare products that include vitamin brands such as Neurobion and Femibion, food supplements, and several popular over-the-counter medicines, notably Seven Seas cod liver oil.
P&G has been struggling with declining revenue from its Gillette razor business, getting a tough competition from the U.S. retailers. The deal closely follows the agreement by GlaxoSmithKline to buy a large stake in Novartis in the previous month out of their joint venture for US$13 billion, with an aim to simply its capital allocation priorities. Another U.S. pharmaceutical conglomerate Pfizer has been mulling to divest its business by selling consumer health business last year.
Prescription Drug Sales Endow Less Margin but Stable Profits
The U.S. healthcare retail business has been proving to be increasingly difficult to garner profits. Amid this background, the acquisition by P&G will help it consolidate its position in the Latin America and Asia markets. Owing to marked consumer brand loyalty, prescription-free drugs offer stable profits compared to pharmaceuticals, although the margin may be more attractive in the latter. However, the landscape has become increasingly fragmented with the growing participation from online seller Amazon and inexpensive store brand products.
Merck could now focus on Core Pharmaceutical Business and Consolidate its Pipeline
Of note, the U.S.-based consumer giant was able to secure $7.5 billion from the group sales of health care products. On the other hand, the German company Merck can now focus on the core pharmaceutical business and consolidate its pipeline by bringing in more flexibility in its business from chemicals, pharmaceuticals and lab equipment. Furthermore, it will use the proceeds from the sales to reduce the debt.