Procter & Gamble to Acquire Merck

Recently, Procter & Gamble announced they reached an agreement to purchase the consumer health division of German pharmaceutical giant, Merck, for $4.2 billion. This acquisition positions Procter & Gamble to move into the growing vitamin supplement market, which experienced a 6% growth between 2014 and 2016. Merck’s consumer products include several major vitamin brands, including Femibion, Neurobion, and Nasivin. On the other hand, Procter & Gamble is known for such brands as Crest toothpaste, Gillette razors, and Pampers diapers. All three of those consumer areas had a growth of only 3%, half that of the dietary supplement market.

Consumer Health Industry Growth

The company’s CEO David Taylor noted he “liked the steady, broad-based growth” that the over-the-counter health industry has experienced the past couple years. Currently, Procter & Gamble’s health care products include Pepto-Bismol, Vicks Vapor Rub, and NyQuil, which make up a small portion of the company’s sale. This acquisition stands to change the dynamics of the company dramatically.

Competition Drives Change

Merck put the division up for sale last year because they needed money to finance several new medicines they are developing. Meanwhile, Procter & Gamble has faced severe competition from Amazon and warehouse stores like Costco. It makes sense that the company would want to expand into the dietary supplement market, which is expected to reach USD $220.3 Billion as early as 2022.

Vitamin & Mineral Supplements

A major advantage of vitamin products is that consumers tend to buy the same brand each time they purchase vitamins. In contrast, with toothpaste and other personal care goods, consumers will often simply buy what is on sale. With this acquisition, Procter & Gamble also hopes to further their reach in Asian and South American countries. Both the Latin American and Asian markets have experienced an increased interest in vitamin and mineral supplements, and the company sees this as a chance to tap into a new source of revenue.

This acquisition is not the first of its kind. Last month, Novartis sold its stake in a consumer joint venture to GlaxoSmithKline Plc. Increasingly, pharmaceutical companies are selling their consumer divisions. In most cases, the divisions show solid growth rates. However, the potential for profit is much greater for prescription medications, which tend to have much higher price tags. Prescription medicines are also expensive to develop.

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