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. Last Updated: 07/27/2016

J&J Purchases Pfizer's Consumer-Health Unit

NEW YORK / LONDON -- Johnson & Johnson agreed to buy Pfizer's consumer health care business for $16.6 billion in cash Monday to increase its lead in the market for nonprescription health products.

The agreement completes a review of strategic options that Pfizer initiated in February for the unit, whose brands include Listerine mouthwash, Sudafed decongestant and Nicorette smoking cessation products. J&J's existing brands include Tylenol, Neutrogena skin products and Johnson's baby shampoo.

People familiar with the situation had said earlier that J&J's offer topped rival bids from British groups GlaxoSmithKline and Reckitt Benckiser. But the price was higher than analysts had expected, and J&J shares fell 2.2 percent, to $60, in pre-market dealings on the Inet electronic brokerage system.

The deal will consolidate J&J's position as the world's largest supplier of consumer health care and over-the-counter medicines. J&J predicted the deal would boost earnings per share on a cash basis in 2009 as it takes advantage of big opportunities to leverage the sales, administration and supply chain of both organizations.

Pfizer said it expected to repurchase up to $7 billion of its common stock in 2006 and up to $10 billion in 2007 so that the Pfizer Consumer Healthcare divestiture would not hurt earnings in 2007 and would add to them in 2008.

The world's biggest drug maker will have to pay tax on the disposal andexpects to book around $13.5 billion in after-tax proceeds.

The price tag of $16.6 billion equates to nearly 4.3 times last year's PCH sales of $3.9 billion, a rich valuation compared with past deals in the sector.

Reckitt paid 3.6 times sales for Boots Healthcare International last year, while Bayer paid 2.4 times sales for Roche Holdings's consumer-health unit in 2004.

"If you are in consumer health, you have to make acquisitions like this," said Paul Diggle, an industry analyst at stockbroker Nomura Code in London, pointing to the benefits from economies of scale.

Shares in Reckitt rose 1.8 percent by mid-session in London on relief it would not embark on a deal that would have stretched it financially, while Glaxo eased 0.4 percent in a flat overall London market.

J&J chief executive William Weldon said the sector offered good growth prospects in markets around the world. "We see the consumer health care markets as increasingly attractive growth opportunities as consumers take greater interest in and responsibility for their own health," he said. "In addition, higher levels of disposable income in developing nations are helping drive increased demand for consumer health products."

Demand for OTC medicines is growing steadily as governments around the world encourage self-medication in a bid to promote patient choice and cut state health care bills.