Bayer today announced its plan to acquire the consumer care business of US based pharma company Merck for a purchase price of USD 14.2 billion (EUR 10.4 billion). With this acquisition, Bayer would becomes the OTC leader in North America and Latin America and will have the potential to achieve top global positions in key OTC product categories. In 2013, Merck’s consumer care business generated approximately 70 per cent of its sales in the US, where it also holds leading brand positions.

The consumer care business of Merck is among the world's largest suppliers of over-the-counter (OTC) products and holds a strong position in North America. The business primarily includes products in the cold, allergy, sinus and flu, dermatology (including sun care), foot health and gastrointestinal categories. Some of its principal brands are Claritin for allergy; Coppertone for sun care; Dr Scholl's for foot health; MiraLAX for gastrointestinal and Afrin for colds.

The acquisition will give Bayer the global number two position in non-prescription 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. Pro forma sales of the combined businesses in 2013 amounted to US $ 7.4 billion (EUR 5.5 billion) with Merck’s business contributing approximately US $ 2.2 billion.

Informing about the deal, Dr Marijn Dekkers, CEO of Bayer said, “This acquisition marks a major milestone on our path towards global leadership in the attractive non-prescription medicines business. At the same time we are leveraging our capabilities in the cardiovascular therapeutic area. We are adding significant scope and earnings power to a business that is already delivering strong margins and stable cash flows.”

The purchase price of US $ 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 US $ 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 US $ 400 million by 2017. Bayer anticipates one-time costs of approximately US $ 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.

In a related transaction, Bayer has entered into a global co-development and co-commercialisation agreement with Merck in the field of soluble guanylate cyclase (sGC) modulators, for which Merck will make an up-front payment to Bayer of US $ 1 billion, with substantial additional sales milestone payments. Interestingly, this deal will also enable strategic pharma collaboration with Merck in the field of sGC modulators.

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 will equally share costs and profits from the sGC modulators and implement a joint development and commercialisation strategy. Bayer will lead the commercialisation for Adempas in the Americas while Merck will lead the commercialisation outside the Americas. For vericiguat and other potential investigational sGC modulators, Bayer will lead the commercialisation outside the Americas while Merck will lead the commercialisation in the Americas. Both companies will have the option to co-promote Adempas and the follow-on sGC modulators in each others’ territories.

Merck will make payments to Bayer of up to US $ 2.1 billion (EUR 1.5 billion), comprising an up-front payment of US $ 1.0 billion (EUR 0.7 billion), and sales milestone payments of up to US $ 1.1 billion (EUR 0.8 billion) related to future collective sales of certain collaboration compounds including Adempas™.