Procter & Gamble’s decision to seek buyers for its pharmaceuticals business is prompting some dealmakers to suggest the company may be cooling its focus on selling certain well-known consumer products brands.
P&G has long debated whether to sell its Duracell battery business, its Iams pet food brand and its Pringles potato crisp brand, people close to the company say. But industry bankers say each of those units could be tough to divest.
A recent rash of M&A fervour in the global pharmaceuticals sector, meanwhile, has made it easier for P&G to seek a buyer for its pharmaceuticals business, which sells prescription drugs including Actonel, for protecting against bone loss, and Enablex, which treats overactive bladder problems.
“I have to think they’ve decided now is not the best time to divest Duracell, Iams or Pringles,” one industry expert said. “They’re pretty methodical, and I know they went through all of those.”
Duracell is large enough to prove unwieldy for potential buyers. Most private equity firms that might have been interested remain unable to do sizeable deals, and the uncertain future of the battery business could make an initial public offering challenging.
Recent consolidation in the pet food industry – and, again, the slump in private equity activity – has limited the number of potential buyers for Iams. And any owner of Pringles, while it is a strong brand, would have to match up against the industry giant Frito-Lay, a division of PepsiCo.
P&G’s move, first reported in the Financial Times, also illustrates how difficult it can be for consumer products companies to own pharmaceutical operations, which generally require a disproportionately large amount of spending to keep their drug pipelines full.
AG Lafley, P&G’s chief executive, has focused on that issue by pointing out the diminishing returns on his efforts in the company’s pharmaceutical division as compared with its consumer products segments.
Integrating prescription drugs with consumer products the other way round, however, can prove easier, and many large drug companies have historically owned consumer-focused healthcare businesses. The development and marketing of consumer health products tends to be cheaper and easier to manage than the research and development that goes into creating prescription drugs.
Pfizer sold its high-performing consumer products division to Johnson & Johnson for more than $16bn in 2006 to focus more heavily on pharma.
However, many dealmakers now consider Pfizer’s decision to reduce its exposure to stable, well-known consumer products such as Listerine mouthwash to have been a mistake.
Pfizer has now agreed to buy Wyeth for $68bn, which would put it back in the business of selling consumer healthcare products, including Advil and Chapstick.