SmithKline Beecham's $2.93 billion purchase of Eastman Kodak Co.'s Sterling Winthrop will make it king of the global over-the-counter drug market. But a tough U.S. environment means its reign will not be tranquil.
The deal, announced last week, gives SmithKline a combined $2 billion in OTC sales, the leading OTC brand in Europe with the analgesic Panadol and a much wider international presence with brands in more than 100 countries.
But its challenges in the U.S. market are many.
Chief among them is Sterling's No. 1 brand in the U.S.: Bayer. Strong and growing private-label aspirins, as well as the increasing popularity of non-aspirin analgesics, have put the Bayer brand under severe attack. For the 12 months through July, Bayer (including Bayer Select analgesics but not its cough/cold and other products) dropped 17% to $126.6 million in sales, said Towne-Oller & Associates, New York.
"Bayer has had definite problems and the Bayer Select introduction created even more of a problem," said Harry Groome, chairman of consumer brands for SmithKline.
Procter & Gamble Co.'s introduction of 12-hour Aleve has made the overall $2.6 billion analgesics market more competitive than ever. Ad spending is up throughout the industry with Johnson & Johnson, which markets the leading brand, Tylenol, being particularly aggressive.
Mr. Groome thinks Bayer still can be resurrected.
"We may not be able to drive 5% to 10% sales growth, but we're looking for a steady year," he said.
Some observers expect SmithKline to turn around and sell the brand, which would help pay for the Sterling purchase and allow SmithKline to focus on its new international potential.
SmithKline has Eno effervescent digestive relief in 26 countries and Contac cold medicine in 10 markets outside the U.S. But Sterling's Panadol is in 64 markets, Phillips' Milk of Magnesia is in 41 and Valdovar cough lozenges are in 28. Still, some think SmithKline is underestimating the importance of the U.S. market.
"I know SmithKline's message is that they want to be a global player, but how badly do Filipinos want Aquafresh?" asked Paul Kelly, president of Silvermine Consulting Group, Westport, Conn. "In the U.S., Bayer Select is the laughingstock of the retail trade. They're sitting on piles of the stuff."
Sterling agencies are sitting on pins and needles.
Lead agency BBDO Worldwide, New York, just broke a $20 million campaign for Bayer aspirin. Ammirati & Puris/Lintas just introduced new print ads for Midol menstrual pain relief.
SmithKline said it will review all marketing and advertising after the acquisition. SmithKline's lead agencies include Grey Advertising, Ogilvy & Mather and Jordan, McGrath, Case & Taylor, all New York.
For Kodak the sale-at an amount higher than most analysts predicted-has meant it will largely be free to concentrate on its imaging franchise.