ACQUISITION

6 Months Ended

Dec. 31, 2018

Business Combination Disclosure [Text Block]

Merck Acquisition

On November 30, 2018, we completed our acquisition of the over the counter (OTC) healthcare business of Merck KGaA (Merck OTC) for $3.7 billion (based on exchange rates at the time of closing) in an all-cash transaction. This business primarily sells OTC consumer healthcare products, mainly in Europe, Latin America and Asia markets. The results of Merck OTC, which are not material to the Company, are reported in our consolidated financial statements beginning December 1, 2018. Total sales for Merck OTC’s most recently completed fiscal year ended December 31, 2017 were approximately $1 billion.

The following table presents the preliminary allocation of purchase price related to the Merck OTC business as of the date of acquisition. The preliminary allocation of the purchase price is based on the best estimates of management and is subject to revision based on final determination of fair values of the assets and liabilities acquired, which will be completed as we complete our analysis of the underlying assets and acquired liabilities, such as pensions, litigation cases, environmental issues, and tax positions.



Amounts in Millions	November 30, 2018
Current assets	$	393
Property, plant and equipment	122
Intangible assets	2,111
Goodwill	2,010
Other non-current assets	143
Total Assets Acquired	$	4,779

Current liabilities	$	233
Deferred income taxes	661
Non-current liabilities	60
Total Liabilities Acquired	$	954

Noncontrolling Interest ⁽¹⁾	$	169

Net Assets Acquired	$	3,656


⁽¹⁾	Represents a 48% minority ownership interest in the Merck India company.

The acquisition resulted in $2.0 billion in goodwill, of which approximately $180 million is expected to be deductible for tax purposes. All of this goodwill was allocated to the Health Care Segment. The goodwill is primarily attributable to the assembled workforce and synergies we expect to generate by combining the Merck OTC business with the Company’s existing personal health care business.

We have preliminarily estimated the fair value of Merck OTC’s identifiable intangible assets as $2.1 billion. The preliminary allocation of identifiable intangible assets and their average useful lives is as follows:



Amounts in Millions	Estimated Fair Value		Avg Remaining Useful Life
Intangible Assets with Determinable Lives
Brands	$	701	14
Patents and technology	118		7
Customer relationships	346		20
Total	$	1,165	15

Intangible Assets with Indefinite Lives
Brands	946
Total Intangible Assets	$	2,111

The majority of the intangible valuation relates to brand intangibles. Our preliminary assessment as to brand intangibles that have an indefinite life and those that have a definite life was based on a number of factors, including competitive environment, market share, brand history, product life cycles, operating plan and the macroeconomic environment of the countries in which the brands are sold. The indefinite-lived brand intangibles include Neurobion and Dolo Neurobion. The definite-lived brand intangibles primarily include regional or local brands. The definite-lived brand intangibles have estimated lives ranging from 10 to 20 years. The technology intangibles are related to R&D and manufacturing know-how; these intangibles have a 7 year estimated life. The customer relationships intangibles have a 20 year estimated life and reflect the historical and projected attrition rates for Merck OTC’s relationships with health care professionals, retailers and distributors.