The Leverkusen, Germany-based company said it would pay $14.2 billion to add Claritin allergy medications and Dr. Scholls footcare products to its arsenal of non-prescription treatments.
"With this transaction, we are acquiring leading product brands that will make Bayer the over-the-counter leader in North America and Latin America and also move us into top global positions in key over-the-counter product categories," said Bayer HealthCare CEO Olivier Brandicourt in a statement.
Global drug companies are feverishly opening their wallets to expand in what they see as their key businesses. The deal will make Bayer the world's No. 2 non-prescription drugs company behind London's GlaxoSmithKline (GSK), which is currently folding its OTC activities into those of Basel-based Novartis (NVS).
The deal between Glaxo and Novartis also has Novartis buying Glaxo's oncology business in exchange for Novartis' vaccines. Novartis is also selling its animal health unit to Indianapolis-based Eli Lilly and Co. Meanwhile, New York's Pfizer (PFE) is trying to spend 63.1 billion pounds ($107 billion) to buy London-based AstraZeneca (AZN) and become an oncology heavyweight.
Bayer late last month became the perceived winner in the auction for the Merck business after the U.K.'s Reckitt Benckiser said it was no longer in talks with Merck.
The purchase price represents a proforma multiple of 21 times 2013 Ebitda, according to Bayer. The Merck activities last year had sales of $2.2 billion and the German buyer expects to eke out $200 million in annual synergies by 2017 and boost sales by an additional $400 million a year by expanding Merck's brands outside the U.S.
Bayer is founding corporate father of OTC remedies after one of its scientists discovered aspirin in the 19th century. The company began beefing up its non-prescription division in 2004 with the 2.4 billion euro ($3.3 billion) acquisition of Roche Holding's OTC business.
Then, earlier this year, it further expanded the retail division with an agreement for Chinese OTC and herbal medicine specialist Dihon Pharmaceutical Group Co. Ltd. No price was given in that deal but Dihon has annual sales of 123 million euros ($171.4 million).
OTC drugs isn't the only business that has caught Bayer's eye: in February the company succeeded with its 17.6 billion Norwegian kroner ($3 billion) offer for Norwegian partner Algeta. Algeta and Bayer have jointly developed a prostate cancer treatment.
But the Merck purchase is Bayer's largest since it paid 16.3 billion euros in 2006 as part of a white-knight bid for Berlin's Schering that made it the world's biggest contraceptive manufacturer.
Bayer said it would finance the deal initially with a loan from Bank of America Merrill Lynch, BNP Paribas SA and Mizuho Bank Ltd. The loan will eventually be syndicated and the company said it would also potentially turn to capital markets.
The acquisition is expected to close in the second half of this year.
To finance the purchase, Bayer may also peddle its plastics division. The company is rumored to be shopping the unit, known as its material science division, which analysts say could fetch more than $10 billion.
Bayer shares slipped 0.81 euro to 99.14 euros in afternoon Frankfurt trading.
Morgan Stanley and JPMorgan Securities acted as financial advisers to Merck, with a Fried Frank Harris Shriver & Jacobson LLP team including David Shine and Abigail Bomba and Morgan Lewis & Bockius LLP's Alan Leeds, Randall Sunberg, David Glazer serving as counsel in connection with the transaction.
--David Marcus contributed to this report.