J&J to buy Pfizer Consumer Health for $16.6 Billion

J&J to buy Pfizer Consumer Health for $16.6 Billion

J&J to buy Pfizer Consumer Health for $16.6 Billion

Johnson & Johnson announced Monday it agreed to purchase a stable of household consumer brands from Pfizer Inc. for $16.6 billion.

Over the weekend, J&J was locked in a bidding war with British pharmaceutical company GlaxoSmithKline PLC, and it is still possible the final results could change if Glaxo re-emerges, a person familiar with the matter said.

J&J, Glaxo and the United Kingdom's Reckitt Benckiser PLC have been keen to purchase Pfizer's consumer brands, which include such products as Bengay pain-relieving cream, Visine eyedrops and Sudafed cold tablets.

Wall Street values consumer-products companies at a price-to-earnings ratio of about 20 times, compared with about 15 times for pharmaceutical companies. That made it attractive for Pfizer to sell the brands, and it appears to have exceeded its original price expectations of about $14 billion.

Patent expirations on Pfizer medicines and generic versions of rival drugs have put pressure on the company, still the largest seller of prescription medicines in the world by sales, to shake up its business. Sales from Pfizer's consumer products rose 10% last year to $3.88 billion, while prescription-drug sales declined 4% to $44.28 billion. Pfizer's shares ended Friday at $22.64 in composite trading on the New York Stock Exchange, compared with a 52-week high of $28.17 reached about a year ago.

With the New York company's stock depressed, management boosted its dividend, stepped up the repurchase of shares and embarked on a campaign to cut $4 billion in costs. The sale of the consumer-health unit was billed by management as another way to increase the value of shareholders' stake in the company.

J&J, of New Brunswick, N.J., is struggling with its own slowing sales growth, particularly for pharmaceuticals. This year could snap the company's streak of double-digit percentage sales and profit gains. A serial acquirer, J&J prowls constantly for deals to boost growth. This search led J&J to bid for defibrillator maker Guidant Corp. but the offer was trumped by Boston Scientific Corp. earlier this year. J&J executives said the company expects sales to rise 6% to 8% in 2005 -- far less than the 12% compound annual growth rate for the decade ended in 2004.

By snaring Pfizer's consumer-health business, J&J would reduce its reliance on prescription drugs for sales and profits. As much as Pfizer seems intent on focusing almost exclusively on those products, J&J executives have long preached the virtues of diversification, another reason they had been interested in buying Guidant.