Thursday, February 13, 2014

WSJ Rumor Piece -- Claims Bids On Consumer Health Due By End Of March. We Shall See, About That.

Okay, the "re-re-treading" of rumors -- likely from bankers -- continues unabated, tonight. I like Pete Loftus and Jonathan Rockoff, but again -- they are being fed some truly gooey stuff, by a banker -- with an angle.

This time, it is my guess that this is likely a banker working from Merck's side of the table. I make this guess because the anonymous-source purports to quote a price level that, by the lights of most disinterested observers, would be considered a Merck "dream price" for these businesses, as they now stand. Truly top of the range, at $10 billion. Perhaps even well beyond it.

The Wall Street Journal story claims a possible 20 times EBITDA valuation. Maybe -- if this were the go-go early 2000s. But not here, in the second decade of the New Millennium. No sir. I'd say that even $9 billion is probably too rich, post the melt-down -- and the tightening of margins generally, in over the counter health care items.

So, I'd say three times sales would be a more "in-market" metric. And that would put the price at a little under $6 billion. [2013 revenue was around $1.9 billion, on Consumer Health -- vast bulk of that inside the US.] But we will just call it an even $6B, for easy reference (and, at least somewhat plausibly, there could well be some significant Merck-supplied transition services, offered with the deal).

Before quoting the Wall Street Journal, though -- we must note that we have been writing about this possibility since early 2009. And, here too -- setting up a spin-worthy management transition team (2010). And yes, readers, this would be yet another example of how Mr. Hassan left an intact profitable company to be ripped apart, into pieces, yard-sale fashion -- here over these last four years. Remicade: Mostly Gone. Saphris/Secrest: Gone. Organon: Decimated. Animal Health: JV with Sanofi -- but abandoned (2011). Now, back in "strategic discussions" mode (2014). Yes, as I've always said -- this is a very slow-motion yard sale, underway -- playing out over four years. . . . Sad, actually -- for the legacy Schering-Plough rank and file.

So, with all that intro -- here is what remains a rumor (do go read it all, at the Journal -- if you are a subscriber):

. . . .Merck's effort to sell its portfolio of well-known consumer brands including Coppertone sunscreen and Claritin allergy pills is kicking into high gear, with big consumer and health care industry players expected to put in bids that could top $10 billion, according to people familiar with the matter.

Merck, which has said publicly it is exploring options for the business, has already received preliminary offers for it, the people said. Merck officials will begin meeting with possible buyers next week, and final bids will likely be due late next month, one of the people said.

The business has more than $550 million of earnings before interest, taxes, depreciation and amortization, a person familiar with the matter said. Past deals have valued such assets at multiples approaching 20 times Ebitda, which would give Merck's consumer business a price tag exceeding $10 billion. . . .

As I say, $6 billion is more likely to be nearly the final offeror's top bid. We shall soon see, apparently. And. . . thanks, again -- Fred, Carrie, Tom, Tom and Brent.

1 comment:

Anonymous said...

All indications are that the pricing game is, indeed, just that. However, the announcement of a deal is sooner than most would believe. March may be the fastest track but by end of second quarter will be the longest wait. Assuming something doesn't kill the deal altogether.