* Bain Capital and Blackstone/Prestige seen front-runners
* GSK aims to complete bidding process by year-end
* Buyers wary about prospects for diet pill Alli
By Sophie Sassard
LONDON, Oct 26 (Reuters) - GlaxoSmithKline Plc is hoping to receive second-round bids for a clutch of its non-prescription drugs by mid-November as it targets a year-end conclusion of the bidding process, sources involved in the situation said.
Private equity firms largely dominating the process are still challenged to fund large deals at a decent price in the current tough debt markets, although confidence has slightly improved following the Sarkozy-Merkel meeting last weekend.
Bain Capital and Blackstone , which has partnered with Prestige Brands , are seen as the front-runners and most likely participants for the second round of the sale.
Uncertainty over diet pill Alli, which accounts for around a third of the portfolio's sales, and the scattered nature of the businesses have made the sale complicated to execute, the sources said.
GSK Chief Executive Andrew Witty told reporters in a quarterly results call on Wednesday that the auction, which is being run by Goldman Sachs, was proceeding "quite nicely" and there had been "terrific" interest.
But he acknowledged the market climate could have an impact. "It would be naive of me to ignore the fact that there is uncertainty in the financial markets out there, so we have to wait and see how that potentially affects things," he said.
GSK said it aimed to conclude the bidding process by the end of December, leaving open the possibility that completion of the sale might drag into the new year.
Some sources believe the deadline for offers could still slip.
"It would not be impossible to postpone the deadline for second round bids to just before Christmas and then do the due diligence in January," a person close to the process said, adding that a deal could still happen by the end of the year.
Doubts have emerged around a number of large deals in the market, including Swiss mobile operator Orange Switzerland and British frozen foods group Iceland, while other deals such as PPR's sale of its catalogues business Redcats was pulled amid debt market turbulence.
Analysts initially said the over-the-counter (OTC) products might raise between 1.5 billion and 2 billion pounds ($2.4-3.2 billion), or 3 to 4 times sales -- a cash windfall that GSK could use to underpin share repurchases in 2012.
But some believe the price will be affected by the modest interest and worries about diet pill Alli, which has been linked to rare cases of liver injury, raising the possibility of legal issues.
GSK said on Wednesday that any sale had to deliver "appropriate shareholder value", suggesting it might be ready to retain some product lines -- which range from Alli to pain-killers and vitamin supplements -- if bids are not high enough.
Trade players including German groups Bayer , Sanofi and Boehringer Ingelheim are believed to be lying in wait, eying some very specific parts of the portfolio, rather than actively seeking to buy the products as a block.
While Bayer would not be interested in the drugs' brands without their manufacturing units, Sanofi and Boehringer would target very specific drugs in precise geographies, several banking sources said.
GSK's preferred option is to sell its OTC portfolio in a single block but the company has indicated it will pursue all options that offer value for shareholders.
Despite the divestment, consumer healthcare will still remain a priority area for GSK. The company aims to focus its portfolio on top brands in Western markets and concentrate heavily on fast-growing opportunities in emerging markets.