Johnson & Johnson has won the race to acquire Pfizer’s consumer healthcare unit reportedly beating rival offers from GlaxoSmithKline and Reckitt Benckiser with a $16.6 billion cash bid that elevates it to the number one position in the sector.
The offer gives J&J a global personal care and over-the-counter medicines business with revenues of $3.9 billion last year from brands such as the Listerine oral care range and the Nicorettte line of smoking cessation agents, and cough/cold products such as Sudafed and Benadryl.
Under the terms of the transaction, J&J will also gain rights to OTC versions of Pfizer’s Zyrtec (cetirizine), currently available on prescription in the USA but due to switch after its patent expires next year. These products will add to J&J’s own non-prescription business, which includes the Tylenol, Neutrogena and Band-Aid brands, and almost double its OTC drug revenues.
Pfizer had been reviewing its options for the division since February so it could focus on its prescription drug business. Meanwhile, J&J is committed to a more diversified business model based on prescription drugs, medical devices and diagnostics and consumer healthcare. The attraction of the latter category is that it is not subject to the volatility caused by patent expiries in the prescription drug sector.
GSK and Reckitt were both said to be very interested in the healthcare business, but are thought to have balked at the price Pfizer was asking. Both are reported to have been offering sums in the region of $14 billion.
“This combination creates the world’s premier consumer health care company,” noted William Weldon, chief executive of J&J, adding that the consumer products business will leap from 18% to 25% of group revenues as a result of the transaction. Prescription rugs will remain J&J’s top sector, with 40% of sales, followed by medical devices and diagnostics with 35%.
The deal is expected to be accretive to the US drug major’s earnings per share on a cash basis in 2009.
Pfizer said that the $16.6 billion sale will result in about $13.5 billion in after-tax proceeds for the group, and vice chairman David Shedlarz said the proceeds would be ploughed into R&D and the acquisition of new products and businesses.
Meanwhile, Pfizer’s chief executive, Hank McKinnell, said the transaction would put the company “in an even stronger position to capitalize on the many opportunities we see in our core pharmaceuticals business, as well as enhance returns to our shareholders.”
Pfizer also said it expects to purchase up to $17 billion of its common stock during 2006 and 2007. The divestiture of the consumer health care business to be non-dilutive to earnings in 2007 and accretive in 2008.
– Meanwhile, Pfizer has decided against setting up its European headquarters in the UK, plumping instead for Germany, accoridng to a report in UK newspaper The Guardian. The decision was reportedly a result of the UK’s bureaucracy, particularly the country’s planning regulations.
