By Pamela Barbaglia and Ludwig Burger
LONDON/FRANKFURT (Reuters) - Generic drugmaker Perrigo (N:PRGO) has decided to enter the fray for Merck (NYSE:MRK) KGaA's (DE:MRCG) consumer health unit, sources told Reuters, and is preparing an indicative offer for the $4.7 billion business ahead of a deadline on Friday.
Perrigo is expected to face competition from Swiss food giant Nestle (S:NESN) and the private equity owners of German drug firm Stada (DE:STAGn), which are also lining up non-binding offers for the maker of Seven Seas vitamins and Bion nutritional supplements, the sources said on Thursday.
Merck's financial adviser JPMorgan (NYSE:JPM) wants to shortlist bidders for the business before the end of the year, they said.
"We are entering a very important phase of the decision making process," said Merck KGaA's head of healthcare business, Belen Garijo.
"We are looking at all options as we announced in September," she said and declined to comment further. Perrigo declined to comment.
The family-controlled German drugmaker said on Sept. 5 it was exploring options for its consumer health business, which generates about $1 billion a year in sales of over-the-counter medicines and vitamin supplements.
Proceeds from the deal, which is worth about 4 billion euros (£3.5 billion), will help fund research into higher-margin prescription drugs.
Merck initially tapped Nestle to discuss a possible consumer joint venture but it subsequently decided to kick off an auction process, mainly targeting large industry players including Nestle.
Perrigo, which has a market value of $12.1 billion, sees Merck's vitamins and supplements as a good fit for its portfolio of generic and over-the-counter drugs, the sources said.
The 130-year old Perrigo, with faces pressure from activist hedge fund Starboard Value, recently beefed up its portfolio by launching five new generic products.
It is now looking at consumer health as another strategic area for growth after walking away from a $205-per-share offer from generic drug maker Mylan NV (O:MYL) in late 2015.
BIDDING FIELD
The bidding field for Merck's consumer health business also includes Germany's Stada, which has less than half of Perrigo's market value and is controlled by private equity investors.
Bain and Cinven, who earlier this year took control of Stada, are looking to use Merck's consumer health unit as a buy-and-build platform for their portfolio firm, which makes generic drugs and consumer care products.
Stada, which had annual revenues of more than 2 billion euros in 2016, is vying with industry players while buyout funds which do not have a presence in the consumer and healthcare industries have been advised against entering the process.
Nestle, which recently agreed to buy Canadian vitamin maker Atrium Innovations for $2.3 billion, wants to continue expanding its presence in consumer healthcare as it seeks to offset weakness in packaged foods, another source said.
The Swiss firm, which wants to become a "nutrition, health and wellness company," promised shareholders in September that moving into consumer health would not be "a carte blanche for reckless diversification."
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 ageing populations and health-conscious consumers drive demand.