Bayer acquires Merck’s OTC portfolio for $14.2 billion
LEVERKUSEN, Germany — Bayer on Tuesday agreed to acquire the consumer care business of U.S. pharmaceutical company Merck for a purchase price of $14.2 billion.
“This acquisition marks a major milestone on our path toward global leadership in the attractive nonprescription medicines business," stated Bayer CEO Marijn Dekkers. “At the same time we are leveraging our capabilities in the cardiovascular therapeutic area.” In a related transaction, Bayer has entered into a global co-development and co-commercialization agreement with Merck in the field of soluble guanylate cyclase modulators, for which Merck will make an up-front payment to Bayer of $1 billion, with substantial additional sales milestone payments.
The OTC acquisition will give Bayer the global No. 2 position in nonprescription products following recently announced consolidations in this growing healthcare industry segment, and will significantly enhance Bayer’s business across multiple therapeutic categories and geographies. Merck's consumer care business includes leading such brands as Claritin, Coppertone and Dr. Scholl’s. Pro forma sales of the combined businesses in 2013 amounted to $7.4 billion with Merck’s business contributing approximately $2.2 billion. “We are adding significant scope and earnings power to a business that is already delivering strong margins and stable cash flows,” added Dekkers.
“With this transaction, we are acquiring leading product brands that will make Bayer the OTC leader in North America and Latin America and also move us into top global positions in key OTC product categories,” said Olivier Brandicourt, CEO of Bayer HealthCare. “The strong Bayer brand will help to further leverage the already successful product brands worldwide. We expect particularly strong growth in key countries outside the U.S. where our superior commercial presence will drive sales of the combined business.”
Upon completion of the acquisition, Bayer is expected to achieve global leadership positions in dermatology and gastrointestinals and advance to the No. 2 position in the cold, allergy, sinus and flu category. Bayer will remain No. 2 in nutritionals and No. 3 in analgesics.
The purchase price of $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.
In 2013, Merck’s consumer care business generated approximately 70% of its sales in the US, where it also holds leading brand positions. The business is primarily comprised of products in the cold, allergy, sinus & flu, dermatology (including sun care), foot health and gastrointestinal categories. The most important brands are Claritin (allergy), Coppertone (sun care), Dr. Scholl's (foot health), MiraLax (gastrointestinal) and Afrin (cold).
The merged business is to be headquartered at the Bayer site in Whippany, N.J.
Staying one step ahead with packaging
With advertising and other forms of traditional media playing a less dominant role in how consumers interact with brands, breaking through with packaging is more significant than ever. In many cases, packaging is the first moment of truth – it provides consumers with an opportunity to touch, feel, smell, hear and experience the brand. Whether it's meant to grab attention at shelf, assist in compliance, or make a personal statement, if it's done well, packaging can have a huge benefit on marketing and serve a variety of purposes.
In constantly evolving categories like over-the-counter, personal care, or food/beverage, the value of packaging is particularly high, as new introductions, line extensions and more specialized players routinely hit the shelves and impact the line up. As a brand design agency that spends much of our time in drug and mass, we have observed several consistent themes with our clients regardless of brand or product. We have distilled our observations into five topline trends to keep in mind as you assess your own packaging for today’s retail environment:
1. More straightforward messaging. At best, consumers have just a few seconds to make their selection in the aisle. Add in a few energetic toddlers, a list of things to do yesterday, and the possibility that s/he isn’t feeling well, and you can cut those few seconds in half. Simple messaging/claims and a front of pack that’s used for what’s most important is a trend we are pleased to ride. It’s easy to forget packaging has multiple panels with additional real estate to use for secondary information, and a clear, concise message on the primary display can make or break that moment of choice.
2. Balancing clinical with friendly. Communicating efficacy is often a prime objective, especially in OTC. But ensuring brands successfully balance a clinical tone with emotional appeal is more prevalent than ever. Unsavory before photos, stringent medical claims and complicated “systems” at one time were effective, but with so many products offering similar functional benefits, these days it comes down to which brand ultimately makes a better connection with the shopper, while delivering on results.
3. Graphics as a powerful communicator. Larger portfolios often have similar SKUs with slight variations – i.e. daytime/nighttime, with/without acetaminophen, for infants/for children, tablet/capsule, etc. There is no greater way to diminish loyalty than for a consumer to arrive home and realize s/he did not purchase (or worse yet, use) the intended product. Whether it’s with colors, shapes, or typography, more and more brands are using design as a powerful tool to communicate and call out those variations in a way that telegraphs quickly and eliminates room for confusion.
4. Add value where you can. Is the container beautiful enough to leave on the vanity? Can the box be maintained for product storage once opened? Might one consider using the empty bottle as a vase for flowers? There are a variety of brands that use packaging to enhance the brand experience and keep consumers engaged beyond product usage. This added value only helps to increase consumer loyalty and set you apart from the pack.
5. Bravo for humor! While it doesn’t fit every brand, today’s consumers certainly appreciate a bit of humor and levity where appropriate. Whether you’re selling diaper rash cream, acne cleanser or deodorant, we’ve discovered telling it like it is, even (especially) with the embarrassing stuff, is a universal way to break through. Gone are the days of speaking in code and dancing around awkward topics. Consumers respond best to authenticity and a lighthearted tone can be the most effective way to achieve that.
While trends shouldn’t dictate your actions, keeping an eye on changes in the marketplace is an important practice. And they may provide you with the impetus to think differently, embrace new approaches or even break old habits.
About the Author
Crystal joined Little Big Brands as a partner in 2011, leading the firm’s business development efforts. Prior to LBB, she spent many years at CBX and Sterling Brands. A self-proclaimed brand fanatic, Crystal is inspired by how people relate to different brands, how they make their choices, and what those selections say about them. She’s also a true client advocate – ensuring that each project’s goals are met and exceeded – and working hand-in-hand to maximize project success with creative and account management teams.
Survey: 9-in-10 shoppers stick with store brands
NEW YORK — Consumers have “no regrets” when it comes to dropping national food, beverage and household brand names from their shopping lists. In fact, nine-in-10 shoppers stick to store brands. Those are among the findings of a new survey Deloitte.
According to Deloitte’s American Pantry Study, 88% respondents say they have found several store brands that are just as good as national brands and that allow them to feel as though they are saving money without giving up anything.
“National brands are pressured on all sides, from persistent consumer frugality and low brand loyalty to rival and store brand competition,” said Pat Conroy, vice chairman, Deloitte LLP and U.S. Consumer Products leader. “While consumers initially resented buying less-expensive products out of necessity a few years ago, they have changed their tune. They have shifted from a feeling of settling for lower-priced brands to settling in to store brands distinguished by high quality.”
Across 28 of the 30 CPG (consumer packaged goods) categories studied, Deloitte found that most consumers perceive store brand quality to be the same or better in most of them. Consumers find the highest private label quality in categories such as bottled water, tabletop disposable paper products, food storage, deli meats, condiments and salty snacks.
However, year after year, the study shows certain categories where consumers remain committed to their national brands and less likely to switch, even despite price increases, including beer, pet foods, soft drinks and coffee.