Merck’s consumer health sale at risk as Nestlé bows out

The sale of Merck KGaA’s consumer health unit has been thrown off track after Nestlé has pulled out, leaving the race to buy the maker of Seven Seas vitamins without its main contender, sources familiar with the matter told Reuters.

LONDON/FRANKFURT — The sale of Merck KGaA’s consumer health unit has been thrown off track after Nestlé has pulled out, leaving the race to buy the maker of Seven Seas vitamins without its main contender, sources familiar with the matter told Reuters.

Nestlé has walked away from the process, led by JPMorgan, after months of negotiations as the Swiss company was put off by Merck’s price expectations of about €4 billion ($4.99 billion), the sources said.

Nestlé and Merck declined to comment. A spokesman for Merck said that “the process of evaluating options for our consumer health business is well on track.”

Four sources familiar with the sale said that interest from other bidders, including British consumer goods giant Reckitt Benckiser, was also waning as a rival consumer health auction, led by US drug giant Pfizer was gaining momentum.

Reckitt is now concentrating on buying the Pfizer unit which makes Advil painkillers, Centrum multivitamins and Chapstick lip balm and is worth about $20 billion, the sources said.

Reckitt declined to comment.

Germany’s Merck said last year it was looking to sell its consumer health care business, which has annual sales of about $1 billion, to help to fund more research into prescription drugs.

Nestlé was initially seen as a natural buyer for the business, which also makes Bion nutritional supplements, after previous talks to set up a consumer joint venture with Merck fell through over the summer.

Consumer health is a fragmented sector ranging from over- the- counter medicines and vitamins to sports nutrition products and condoms. It has proved fertile ground for deals in recent years, as aging populations and healthconscious consumers drive demand.

Nestlé’s CEO Mark Schneider is a health care veteran and wants a deeper focus on nutrition, health and wellness.

Nestlé made a non-binding bid for the Merck’s business in November and was then shortlisted to carry out due diligence and submit a final offer this year.

But the Swiss food group could not reach an agreement on price as Merck was targeting a valuation as high as 20 times the unit’s core earnings, according to one of the sources.

Another source said mounting pressure from Dan Loeb’s activist fund Third Point, which last year made a $ 3.5 billion investment in Nestlé, also played a role in deciding against buying the Merck’s business.

Mr. Loeb has repeatedly asked Nestlé to move faster to overhaul its strategy. He wants the Swiss company to boost its exposure in high-growth areas such as coffee, pet care, bottled water and nutrition while selling “ill-fitting businesses” more quickly.

Mr. Schneider has so far taken positive steps including selling the US confectionery business to Italy’s Ferrero for $ 2.8 billion but he wants to be disciplined on price, the sources said.

Famous for his sharply worded letters to corporate chieftains, Mr. Loeb wrote on Jan. 22 that he was concerned about Nestlé pushing more deeply into consumer health care with the purchase of Canadian vitamin maker Atrium Innovations and said he wants a better explanation of that move. —