LONDON/CHICAGO (Reuters) - Procter & Gamble’s $4.2 billion deal for Merck’s vitamin and supplements business is the latest example of a major consumer company stocking up on health-related products.
The U.S.-based maker of Tide detergent and Gillette razors announced the deal on Thursday, giving it brands such as Seven Seas vitamins and expanding its portfolio of healthcare products.
Just last month, cleaning product maker Clorox Co agreed to buy multivitamin company Nutranext for $700 million. And in December, Nestle SA paid $2 billion for vitamin maker Atrium Innovations.
The moves show how global consumer goods companies are looking to new, interesting areas to offset flagging growth in their core businesses.
The vitamins and supplements sector is attractive due to the emergence of new brands marketing themselves digitally and selling directly online to young consumers, said investment banker William Hood of William Hood & Co.
“It’s what the millennials are buying and how they’re buying it,” Hood said. “Large companies are realizing they need to figure it out.”
A spokeswoman for P&G declined to comment on the company’s strategy to expand its vitamins, minerals and supplements business. P&G already owns consumer health brands including Vick’s, Metamucil and Pepto-Bismol.
Globally, the vitamin and supplements category has grown between 5 and 7 percent annually for the past five years, according to Euromonitor.
The category is very fragmented, with market leader Amway Corp having only 3.6 percent share, Euromonitor data showed. That implies a consolidator could easily boost margins by building scale.
Consumer goods firm Reckitt Benckiser has owned Schiff, maker of MegaRed tablets for heart health and Airborne for immunity, for five years. It was a very different business to other health or home goods, said CEO Rakesh Kapoor on a post-earnings call in February, adding that sales and margins were improving after some stumbles.
“This is a category which is here to stay. It is one of the single largest categories in health,” he said.
P&G was in talks with Pfizer about buying the U.S. drugmaker’s consumer health business, CNBC reported earlier this month. Pfizer hoped to bring in $20 billion through an auction for the business, which includes Centrum vitamins and Advil painkillers.
The auction hit a roadblock after GlaxoSmithKline and Reckitt Benckiser dropped out of the running.
When asked about its interest in Pfizer on Thursday, P&G chief executive David Taylor declined to comment.
Referring to the P&G-Merck deal, Liberum analyst Robert Waldschmidt said: “The question is - is it a prelude to more? ... Is P&G still theoretically on the hunt for Pfizer?”
Bernstein analysts noted that the Pfizer business “may still be an acquisition candidate (for P&G) since it doesn’t seem to raise anti-trust concerns on the surface.”
Reporting by Martinne Geller in London and Richa Naidu in Chicago, Editing by Rosalba O'Brien