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Bayer to buy Merck consumer business for $14.2B

| Tuesday, May 6, 2014, 1:39 p.m.

TRENTON, N.J. — Germany's Bayer plans to buy Merck & Co.'s consumer health business, establishing a combined medicine cabinet of household names from Bayer's aspirin to Merck's Claritin allergy pills.

The $14.2 billion deal announced on Tuesday would vault Bayer AG atop the nonprescription medicine business across North and Latin America. It would make Bayer No. 1 worldwide in skin and gastrointestinal products, a strong No. 2 in the huge cold and allergy category, and No. 3 in pain relievers.

“We are combining two highly complementary businesses with virtually no overlap that will improve our product position over multiple categories,” Marijn Dekkers, Bayer's CEO, said on a conference call with journalists.

Merck, widely considered the most research-driven U.S. pharmaceutical company, would divest a slow-growing business it inherited in 2009 when it bought Schering-Plough Corp. to get its experimental prescription medicines.

Bayer, which invented aspirin more than a century ago, has a major over-the-counter division whose brands include Aleve pain reliever, Alka-Seltzer and One-A-Day vitamins. The deal will add Claritin, the Coppertone sun-care line, Dr. Scholl's foot-care products and MiraLAX laxative.

The deal is not expected to impact Bayer's operations in Pittsburgh, where about 2,200 people work. The company's North American MaterialScience division is based in Robinson, and its radiology business, made up of the former Medrad, has several facilities in Western Pennsylvania. The Merck unit is expected to be managed from New Jersey, where Bayer's North American health care division is headquartered.

The transaction is part of a surge in pharmaceutical industry deals. Some drugmakers are selling or swapping business segments to focus on areas where they have the most expertise, marketing prowess and prospects for growth, as Merck is doing. Others, like Bayer, are making acquisitions to beef up their portfolios of products or experimental drugs to open market windows.

Merck CEO Kenneth Frazier said in January that he was evaluating options for Merck's consumer and animal health businesses, both units without enough scale to grow quickly. On Tuesday, Merck said it would use the sale proceeds to invest in business areas with the highest growth potential and bolster its drug pipeline with “external assets.”

The transaction, expected to close in the second half of 2014, requires regulatory approval. Bayer will borrow money to pay for the deal, which will bring it significant tax savings and about $200 million in savings on marketing and production costs by 2017.

“The extra revenue creates the synergies for us,” Dekkers said, adding that the deal “marks a major milestone on our path towards global leadership in the attractive non-prescription medicines business.”

Ana Nicholls, a health care analyst at The Economist Intelligence Unit, noted Bayer has offset price-cutting and recession in Europe with a big push into emerging markets.

“It now has a geographical reach that should allow it to take its newly acquired U.S. brands, such as Claritin and Coppertone, and roll them out pretty much worldwide,” she added.

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