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J&J beats British firms to Pfizer OTC unit

US firm wins bidding war with GlaxoSmithKline and Reckitt Benckiser with all cash offer

Johnson & Johnson (J&J) has pipped British firms GlaxoSmithKline (GSK) and Reckitt Benckiser to Pfizer's much coveted consumer health division with a $16.6bn cash offer.

Global number one, Pfizer, has been courting potential suitors for the unit for several months. The deal, which has to be approved by the boards of both companies, is expected to close by the end of the year pending regulatory approval.

J&J has been hampered by slowing sales growth and is in danger of ending an impressive run of double-digit percentage sales and profit gains this year. The purchase means it will add leading brands such as Bengay pain-relieving cream, Visine eyedrops and Sudafed cold tablets to its consumer portfolio.

Pfizer, threatened by patent expiries to leading brands and increased generic competition, has been under pressure to restructure its business. Last year, it embarked on a plan to cut $4bn in costs and saw the sale of its consumer health unit as another way to increase the value of shareholders' stake in the company.

Pfizer said the sale would result in about $13.5bn in after-tax proceeds, enabling it to both invest further in its higher margin, core pharmaceuticals division and expand its share purchase authorisation from $5bn in June 2005 to $18bn. It said it intended to purchase up to $7bn of its stock in 2006 and up to $10bn in 2007.

ìWe will now be in an even stronger position to capitalise on the many opportunities we see in our core pharmaceuticals business, as well as enhance returns to our shareholders,î said Pfizer chief executive, Hank McKinnell.

J&J CEO, William Weldon commented that the acquisition would build upon J&J's ìbroad base in healthcare productsî and its ìleadership objectives in the consumer, pharmaceutical and medical devices and diagnostics marketsî.

Analyst Bruce Nudell at Sanford C Bernstein said that while J&J had successfully managed to make use of some of its huge cash reserves, the move did not address the firm's long-term problem of revitalising its medical devices division.

30th September 2008

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