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Schering-Plough is open to offers for its over-the-counter business, said a source claiming knowledge of the situation and an industry banker. Industry experts have long thought that the Kenilworth, New Jersey-based pharmaceutical was considering selling the business, but now they say it may finally get the chance after having reached a deal to buy Organon Biosciences from Akzo Nobel for EUR 11bn.
A spokesperson for Schering Plough (SGP) refused to comment on the suggestion that it could be open to selling its consumer business right now. A second source said it was his understanding that Goldman Sachs, which advised Schering on its recent Organon purchase, has let it be known that the company is open to offers on the business, but does not plan to run a formal auction process.
The source claiming knowledge said Schering-Plough is open to offers on the unit, but only to a buyer interested in taking both Dr Scholl’s and Coppertone. Coppertone, which is one of the top-three sun protection brands in the US, is thought to be coveted by a number of consumer product companies, while Dr Scholl’s is less desirable.
Reckitt Benckiser was cited as a potential buyer by several consumer banking sources, although one banking source familiar with the Slough, UK-based consumer products business said the idea of a sale was a bit premature since SGP had only just acquired Organon. The source was not aware of any process or decision to sell being made.
Japan’s Kao Corp could also be interested because it is trying to gain scale in the US personal care sector, as could be Princeton, New Jersey-based Church & Dwight, the second source said. Another potential buyer could be Procter & Gamble Co, which would be interested in the Coppertone and Dr Scholl’s brands, several banking sources said.
Up until now SGP could not sell its consumer business because its overall business was loss making. It had more than USD 1.5bn of tax credits prior to the Organon buy. Indeed a discounted cash flow model (pre-Organon) by this news service showed that about 80% of SGP’s valuation hinged on Vytorin, its statin joint venture with Merck.
The second source said it was their understanding SGP is open to offers for the consumer business now because the company feels the stock market will not penalize it for such a divestiture, as it would have before it bought Organon.
Industry sources said the SGP consumer business may well be broken up and sold in parts because the constituent units that make up the business will interest different parties.
The SGP business consists of three units: over-the-counter, foot care and sun care. The over-the-counter business consists of antihistamine brand Claritin, Drixoral for cold and flu, the nasal decongestant spray Afrin and the Correctol brand of laxative tablets. Together these brands generated revenues of USD 558m, up 0.4% from the previous year. Most analysts project a growth rate of about 1-2% CAGR for the next five years.
The foot care unit consists of Dr Scholl’s foot care products, Lotrimin topical antifungal products and Tinactin topical antifungal products. Last year the business recorded a growth rate of 3%, producing revenues of USD 343m, about USD 5m up from consensus.
Schering-Plough owns the US rights to the Dr Scholl’s brands, while interestingly off-cited Reckitt Benckiser target SSL International, the UK consumer products business, owns the European rights. A report on SSL by this news service in 2004 noted that Reckitt’s interest in the condoms-to-footcare brand was very much linked to the Dr Scholl brand.
Finally, the sun care division comprises sun cream brand Coppertone and sunburn relief products Solarcaine. This business achieved sales of USD 222m, up 8.8% from the previous year. Analysts project this business to grow about 3-4% per annum for the next five years making it a highly prized consumer products business.
Overall SGP’s consumer business generates a growth rate about 2% per annum, which is about the industry norm, according to an executive at another US pharmaceutical business with a large consumer division. It generates operating margins of about 20-22% per annum. Pfizer recently sold its consumer business for about 19.4x EBITDA, equivalent to USD 16.6bn, to Johnson & Johnson.
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