GlaxoSmithKline is to bid more than $15 billion (€11.61 billion) for the consumer healthcare business of US rival Pfizer, sources said yesterday.
The move raises the bar in the auction for the over-the-counter (OTC) medicines unit, which is worth $3.88 billion a year, whose top-selling brands include Listerine mouthwash, Sudafed decongestant and Rolaids antacid.
Previously, analysts had estimated the business would sell for around $14 billion, or 3.6 times 2005 sales, similar to the multiple paid by Reckitt Benckiser for Boots Healthcare International last year. GSK lost out in that sale.
Industry sources said that GSK, along with Johnson & Johnson and Reckitt, had emerged as frontrunners to acquire the Pfizer business after the chief executive of Colgate-Palmolive played down talk of its interest. Final bids for the division are due on Tuesday.
A bid of more than $15 billion from GSK, reported in the Financial Times, would underscore the value that consumer health companies put on a prize asset in a fast-consolidating sector.
If successful, it would secure GSK's position as the world's leading supplier of non-prescription medicines - a growth sector being encouraged by many governments who see it as a way to increase patient choice and cut state healthcare bills. But competition in the auction is expected to be intense.
GSK shares fell 0.7 per cent as investors worried it could overpay. The FTSE 100 was up 0.6 per cent.
Analysts at Dresdner Kleinwort Wasserstein, however, said they believed a deal at $15 billion would be earnings neutral in the second year, and Paul Diggle of Nomura Code said there may be considerable scope for GSK to reduce costs. "Strategically, it is a good deal," he said.
Despite its size, adding the Pfizer business to GSK's large established consumer health division - which had sales of £3 billion in 2005 - would create few product overlaps or antitrust issues, analysts said. An area where disposals would probably be needed was non-prescription smoking cessation products.
Pfizer first announced in February it was weighing spinning off the business to shareholders in a tax-free transaction, or selling it, which would trigger a hefty tax bill. Analysts believe a price of $15 billion would be high enough to offset the pain of a tax bill.
