Last week was a dramatic one for M&A news in the OTC industry. In the days running up to the deadline for binding offers for Pfizer Consumer Healthcare, both RB and GSK announced they had withdrawn from the process.
RB’s CEO, Rakesh Kapoor, said: “Our priority remains organic growth, including the completion of the integration of Mead Johnson Nutrition and creating further value from re-organising into two new business units — Health and Hygiene Home … An acquisition for the whole Pfizer consumer health business did not fit our acquisition criteria and an acquisition of part of the business was not possible.”
GSK’s CEO, Emma Walmsley, later commented: “While we will continue to review opportunities that may accelerate our strategy, they must meet our criteria for returns and not compromise our priorities for capital allocation.”
All three companies are in the Top 6 globally, and a tie-up between No.6 RB and No.5 Pfizer would have created a new No.1 globally. Meanwhile, if the current No.1 GSK had acquired Pfizer, its lead would have been significantly enhanced – see the chart below for a sense of what might have been (assuming both GSK and Pfizer would not have had to make divestments).
Investors have reacted positively to the news of no M&A deal, sending shares in both RB and GSK higher. In the latter case, some had been concerned that the potential US$20bn deal could have distracted from GSK’s focus on pharma, and jeopardise its dividend.
After RB’s withdrawal, Pfizer stated that it “continues to evaluate potential strategic alternatives for the CH business, which include a spin off, sale or other transaction, and Pfizer ultimately retaining the business. We have not yet made a decision, but continue to expect to make one in 2018.”
Nicholas Hall, in Friday’s OTC.Newsflash, commented: “I recently addressed a group of private equity and hedge fund investors about the future of CHC, and all they wanted to talk about was RB, GSK and the disruption of the industry by private label and Big Tech. The investment community is very concerned about the growth prospects of the CHC industry, and that is one of the reasons strong signals were sent to RB not to overpay for Pfizer Consumer Health; as we now know RB subsequently pulled out of the bidding. Briefly, that left “the last woman standing”, GSK’s Emma Walmsley, but GSK like RB was unprepared to pay the $20bn that seems the generally-accepted valuation for PCH. As readers of this column know, my thinking had tilted towards “no sale” in the past few weeks, and unless there is a last-minute change of heart, the likelihood is that Pfizer will keep its CHC division and look at other options: retain and grow; spin off; make a j-v.”