Update on Walgreens Boots Alliance deal

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Since the global financial crisis, mega dealmaking has gone out of fashion but could now be making a comeback with Stefano Pessina’s planned leveraged buyout of Walgreens Boots Alliance, described as potentially the “largest private equity deal on record”, according to the UK Financial Times. Days after it emerged that Walgreens Boots Alliance had held preliminary talks with private equity groups regarding a potential US$70bn deal to go private, shares in the US-based company rose again on reports that KKR had made a formal approach.

Pessina has a 16% stake in the company and already teamed up with KKR to take Alliance Boots private in 2007, though this time there is a far more challenging amount of debt to be raised in the high-yield bond market, which will be a test of market appetite for a deal of this magnitude. Nicholas Hall commented: “Last week I wrote about the possibility of WBA’s delisting from the stock market and going private: “The general view is that this deal is just too big; and yet, and yet!” Seems I was right to be cautious about writing off what might be Stefano Pessina’s magnificent swansong and the world’s largest private equity deal.”

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Walgreens Boots Alliance is the global leader in the retail pharmacy sector, operating just under 20,000 stores in 11 countries and recording revenues of US$136.9bn in the year to end-August 2019. WBA’s US retail pharmacy business accounts for 76% of this total, but operating income has declined by 20.5% owing to drug reimbursement pressures and increased competition from Walmart and Amazon. In addition, WBA’s international retail pharmacy business reported weak growth owing to a “challenging UK market”. According to a report in Forbes, the advantage of going private would be a chance to arrest the decline in WBA’s share price, down nearly 10% this year, as the deal would take the company away from the public eye and could make it easier to focus more on pharmacy point-of-care services.

Separately, under an agreement with Mitra Adiperkasa (MAP), a leading lifestyle retailer in Indonesia, WBA is to create a Boots branded pharmacy-led, health & beauty retail business in one of the world’s most populous countries. The first stores are expected to open in H2 2020. “Boots is a great addition to our diversified brand portfolio, which will help MAP further unleash the power of its 360° retailing strategy,” said Group CEO, VP Sharma. “We are confident that the combination of Boots cutting-edge products together with MAP’s solid competitive advantages will elevate the unique Boots experience to a whole new level in Indonesia.”

Announcing Nicholas Hall’s Reports End of Year SaleUp to 25% off – valid until 31 December. We are pleased to announce a special End of Year offer for our CHC Reports! Until 31 December, we are offering a 15% discount on the 2019 Reports Catalogue, plus an additional 10% discount on orders for multiple reports. If you would like additional information on any of our publications, or would like to place an order, please contact Melissa.Lee@NicholasHall.com

Stada to rise up OTC rankings

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Two major M&A deals agreed in the past week look set to elevate Stada into the consumer healthcare global Top 20. In this week’s blog, we look closer at the details of each deal and, based on the calculations of our DB6 data division, where Stada may end up in the rankings once both deals are closed.

As part of Takeda’s goal to divest around US$10bn in non-core assets, the company has agreed to sell to Stada around 20 selected OTC and Rx products marketed in Russia, Georgia & CIS countries, for US$660mn. The portfolio comprises cardiovascular, diabetes, general medicine, respiratory and OTC supplement entries, and includes Russia’s leading systemic cardiovascular, Cardiomagnyl (aspirin + magnesium hydroxide).

Stada will acquire the rights, title and interest to the products in Russia, Georgia, Armenia, Azerbaijan, Belarus, Kazakhstan and Uzbekistan, while under a manufacturing & supply agreement, Takeda will continue to manufacture the products on Stada’s behalf. The deal is expected to complete in Q1 2020 and, based on current assumptions, could elevate Stada into the No.7 position in Europe.

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Stada already takes the No.9 position among Europe’s Top 10 OTC marketers

Stada has also entered into an agreement to acquire Walmark from Mid Europa Partners for an undisclosed sum. Based in Czech Republic, Walmark is a leading consumer healthcare company in CEE with a direct presence in nine markets, while its products are available in 40+ markets globally. The company’s portfolio spans multiple categories, and key brands include Proenzi joint health range, Urinal urinary health brand, Biopron probiotics for gut health and Martians paediatric supplements. 

Stada’s Head of European Markets, Steffen Wagner, commented: “We are significantly strengthening our presence in Central Europe — especially in Czech Republic, Slovakia, Romania, Bulgaria and Hungary — as a result of this acquisition. We are also looking at ways in which we can market the Walmark brands outside of the current core geographies.” Again, the deal is expected to complete in Q1 2020, and the combined impact of these two acquisitions may raise Stada up as high as the No.14 position in the global OTC rankings.

You can now take a first look at the speaker line-up of industry experts who will be joining Nicholas Hall in Athens next year for our 31st European CHC Conference, taking place from 28th to 30th April! To reserve your seat at the early-bird discounted rate, or to find out more, including information on sponsorship opportunities, please contact Jennifer.ODonnell@NicholasHall.com or Lianne.Hill@NicholasHall.com

Pfizer-GSK j-v approved, Pfizer-Mylan to close mid-2020

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At the end of last week, it was announced that GSK and Pfizer have closed their j-v, combining the groups’ respective consumer healthcare businesses to create the world’s largest CHC company. According to the latest MAT Q1 2019 data (see table below), this new entity – which will operate globally as GSK Consumer Healthcare – will become the standout No.1, increasing its global share from around 4% to roughly 7%, though of course divestitures will be necessary. Those already identified include ThermaCare (by the EU authorities) and Pfizer’s antacid tablet business (by the Brazil authorities), while some OTC brands (like Viagra Connect) will stay with Pfizer.

As previously announced, under the deal Pfizer owns a 32% equity stake in the j-v and GSK owns 68%. The combined company, which will be led by CEO Brian McNamara, will take leadership positions in pain relief, respiratory, VMS and therapeutic oral health. The new business will also hold the No.1 CHC spot in the USA and the No.2 position in China. As part of the agreement, Pfizer has appointed three of the nine members of the j-v’s board. GSK intends to separate the j-v as an independent company via a demerger of its equity interest to its shareholders and will list it on the UK equity market.

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In the same week, Pfizer announced plans to enter into a definitive agreement to combine Upjohn, its off-patented branded and generics business, with Mylan. The new company, which will be renamed and rebranded when the transaction closes (expected mid-2020), will expand the capabilities of both Mylan and Pfizer across 165+ markets. Mylan brings a diverse portfolio across many geographies and key therapeutic areas, while Upjohn brings iconic brands such as Lipitor, Celebrex and Viagra and leadership positions in China and other emerging markets.

The combination will drive a diverse portfolio of Rx medicines, complex generics, OTCs and biosimilars. It will be based in the USA and led by Mylan’s current Chairman Robert Coury, who will serve as Executive Chairman. Pfizer shareholders will own 57% of the new company and Mylan shareholders will own 43%. The new company is expected to have pro forma 2020 revenues of US$19bn-20bn.  

Commenting on the deal, Nicholas Hall said: “The new company will be a top CHC player, owing to Mylan’s 17th ranking, plus the Viagra Connect business and sundry other Pfizer CHC brands that didn’t go into the GSK j-v. That could well move NewCo into the Top 10. The questions in my mind are: will NewCo keep these assets or sell them on; and (more importantly) will it license out the rights to what is one of the best switch portfolios in the industry or manage the switches themselves.”

The evolving OTC market will be under the spotlight in our forthcoming report, Nicholas Hall’s New Paradigms for CHC 2019: Over the Horizon, written by Nicholas himself! Other chapters will include Healthcare Trends, Regulation, Digital engagement amongst many others. Nicholas will also unveil the 15 “Infinity Zones” he has identified as being crucial to the future growth of the industry. You can upgrade your purchase to include a customised in-house presentation or webinar with Nicholas for an additional GB£10,000. To find out more or to pre-order your copy, please contact melissa.lee@NicholasHall.com.

RB 2.0: E-commerce a key focus

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With CEO Rakesh Kapoor retiring at the end of the year, and ambitious plans for RB 2.0 to be implemented within the next year, this is without doubt a transformational time for RB. Nicholas Hall believes RB 2.0 will lead to the “end-point of divesting the Hygiene Home business, and with the company quickly moving on to v3.0 and a major merger. I can think of at least four CHC companies that may want to be associated with RB v3.0, not all of whom could be considered equals, but who would be attracted by a cashless transaction and the benefits of scale.” 

RB released its full year results last week, with net revenue in 2018 up by 3% on a like-for-like basis, while Health grew by 2%. Within Health, the OTC segment rose by 5%, driven by innovations (Nurofen 24-hour patch, Strepsils flurbiprofen spray) and strong regional performances (Lemsip in UK, Luftal in Brazil, Moov in India and Tempra in Mexico). As part of its RB 2.0 mission, the company is planning to “supercharge” innovation even further, focusing on new categories (i.e. the launch of brain health supplement Neuriva later in H1 2019), new consumers and new channels (i.e. MegaRed and Move Free in e-commerce outlets in China).

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In its 2018 results presentation, RB emphasised its “best-in-class digital and e-commerce capability” as a key driver behind RB 2.0 growth, highlighting the specific case of China where the company’s online sales already outweigh “offline” sales thanks to strong partnerships with the likes of Alibaba and JD.com. Innovations such as MegaRed CoQ10, Move Free Ultra and Move Free Advanced have been specially developed for the e-commerce channel in China and the USA. 

In its results, the company also reported that 9% of RB Health sales are generated in the e-commerce channel, which it says ranks second among its consumer healthcare peers, while its operating margin of 28% is way ahead of the consumer healthcare average. RB attributes its success in e-commerce to its FMCG heritage and its strong margins to the relatively high proportion of its portfolio devoted to Consumer Health vs key OTC competitors.

Nicholas Hall’s New Paradigms for CHC 2019: Over the Horizon, our upcoming new Signature Report written by Nicholas, includes a chapter dedicated to reviewing M&A within the CHC industry. Exploring recent transactions, multiples and the buyers and sellers — with predictions of likely future deals — Nicholas also asks whether M&A actually works and examines the role of private equity. An essential read for all players striving to compete in this rapidly-evolving marketplace, for the full table of contents or to pre-order your copy, please contact melissa.lee@NicholasHall.com.

 

J&J to buy Zarbee’s

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J&J Consumer has entered into a definitive agreement to acquire natural healthcare products company Zarbee’s Naturals for an undisclosed sum. With a 50% CAGR, the Zarbee’s Naturals business racked up sales of US$68mn in 2017, according to Nicholas Hall’s global OTC sales database DB6, and there is lots of room for growth ahead.

J&J’s VMS portfolio accounts for just 0.1% of its total consumer healthcare business, so the Zarbee’s deal will provide a significant boost (see the table from OTC DASHBOARD below showing J&J’s current OTC sales split by major category). There will also be scope to build the brand internationally – at present, Zarbee’s focus is almost exclusively on the US market, so J&J will likely use its considerable marketing muscle to roll out the brand in other key regions where it has a strong presence, like Europe and Asia-Pacific.

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Founded in 2008, Zarbee’s Naturals is majority owned by the Growth Fund of L Catterton in partnership with various minority owners, including Sorenson Capital. The deal, which is expected to complete in Q3 2018, will include the full line of Zarbee’s Naturals products for children and adults.

Product innovation has been one of the main drivers behind exceptional growth for Zarbee’s Naturals. In April 2018, the company introduced three Children’s Complete Multivitamins in a gummy format, including Complete Multivitamin + Iron, Complete Multivitamin + Probiotic and Complete Multivitamin + Immune. In partnership with Amazon, Zarbee’s also released a Baby Bee Essentials Gift Set complete with a bee romper and products such as Gripe Water and petroleum-free Baby Soothing Chest Rub. Paediatric products like these will fit well with J&J’s family-friendly image.

As Health and Wellness climbs up the list of consumer priorities, the market for herbal and natural options is booming. Take a look at what the future holds for this market with Nicholas Hall’s upcoming report Herbals & Naturals: Opportunities in a Vast & Dynamic Area of Consumer Health. Scheduled for publication in August, this report will include coverage of 9 leading global markets, analysis into a wide range of categories including Herbal & Natural Supplements, Topical Analgesics, Cough Remedies, Laxatives and more, plus forecast sales. Benefit from early bird rates when you pre-order today! For more information, or to pre-order your copy, please contact melissa.lee@nicholashall.com.

BMS to sell French subsidiary?

According to an exclusive report in Reuters, BMS is looking to sell its French OTC subsidiary, Upsa, in a potential deal which could exceed €1bn (US$1.2bn). Deutsche Bank and Jefferies are said to be preparing the auction process, which will begin after the summer. It is rumoured that potential bidders may include Stada, Zentiva, Mylan and P&G, while Recordati could also decide to make a play for the company.

Upsa has been in operation for over 80 years and the company itself is a well-established brand in France, by far BMS’s key OTC market. According to DB6, BMS generated global OTC sales of US$477mn in 2017, 60% of which were generated in France (US$285mn). BMS’ next two biggest OTC markets are Belgium and China.

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Upsa’s key brands are Dafalgan and Efferalgan analgesics (both paracetamol), as well as the paracetamol-based Fervex systemic cold & flu line. According to the latest OTC DASHBOARD trend report, Upsa is the No.2 OTC marketer in France behind Sanofi but sales there fell by 4.8% in 2017, with mid-single digit declines for Dafalgan and Efferalgan.

Price cuts for reimbursed semi-ethical painkillers like Dafalgan and Efferalgan have contributed to the decline in France, causing marketers like Upsa to shift focus from reimbursed options to pure OTCs; reimbursed Efferalgan SKUs were rebranded as Efferalganmed in October 2015. In December 2017, the marketer also rebranded Fervex medical device options as Les Élémentaires, in response to rising concerns about the use of umbrella branding which could confuse consumers.

With M&A activity in the CHC industry rapidly increasing, it might be the right time for your business to explore interesting and suitable growth opportunities coming from M&A. Our specialist M&A boutique is working with a number of strategic and financial partners to assess potential opportunities — for buyers and sellers — and is well placed to discuss the current business climate and possible synergies. To find out more, please contact ammar.basit@NicholasHall.com.

GSK, RB pull out of running for Pfizer OTC

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).

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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.”