Reckitt Benckiser CEO Rakesh Kapoor speaks during the Reuters Global Consumer and Retail Summit in London September 11, 2013 - REUTERS/Benjamin Beavan /File Photo Reckitt Benckiser CEO Rakesh Kapoor speaks during the Reuters Global Consumer and Retail Summit in London September 11, 2013 - REUTERS/Benjamin Beavan /File Photo

Reckitt CEO stands by Mead Johnson deal, despite Pfizer option

Sat, Mar. 10, 2018
LONDON - 10 March 2018: Reckitt Benckiser has no regrets about its $17 billion acquisition of Mead Johnson last year, its chief executive said, even though there are concerns it may now be too stretched to buy Pfizer’s coveted consumer health business.

The Pfizer business, which is currently on the block, would fulfil Reckitt CEO Rakesh Kapoor’s long-stated plan to transform Reckitt from a British maker of household cleaning products into a global leader in consumer healthcare.

But some analysts question whether Reckitt has the managerial and financial strength to pull off a deal that may be worth up to $20 billion so soon after buying the Mead Johnson baby formula business.

Kapoor declined to say whether Reckitt was bidding for the Pfizer unit, which makes Centrum vitamins and Advil painkiller, or another smaller vitamin business being sold by Merck.

The CEO told Reuters that the Mead Johnson acquisition had already benefited Reckitt, although it has only just reversed several quarters of decline in that business.

“I can easily say that if I knew then what I know now, I would still have gone for Mead Johnson,” Kapoor said.

“If you think about what Mead Johnson brings, it gives us a material platform in many emerging markets where we did not have it, gives us a new category and was a catalyst to create RB2.0,” he said, referring to its new business structure operating as two units, one focused on health and one on hygiene and household goods.

GlaxoSmithKline is a potential rival bidder for the Pfizer business. The CEOs of GSK and Reckitt have expressed interest in the Pfizer sale, though neither company has confirmed its participation.

Liberum analysts estimated that Reckitt could afford to pay more than GSK while still adding to earnings, helped by potentially selling off assets in the home and hygiene unit to fund the deal. But analysts at Jefferies have expressed scepticism about big divestitures, saying recently that buying Pfizer “adds up to leverage beyond the pale.”

Even after selling a small food business to reduce leverage, Reckitt’s net debt stood at about 3.5 times its earnings before interest, tax, depreciation and amortization (EBITDA) at the end of the year.

Pfizer’s business would expand Reckitt’s presence in developed markets in consumer health categories where it already has its own brands like MegaRed supplements and Nurofen tablets.

It would also give it a world-leading position in the still-fragmented consumer health market, which is buoyed by aging demographics and greater awareness of health and wellness.

Mead Johnson took it into a new area of baby formula and dramatically boosted its presence in fast-growing markets like China.

“Mead Johnson is giving us something we didn’t have,” Kapoor said.

Reckitt has a track record of doing deals, dating from the 1999 combination of Britain’s Reckitt & Colman with Benckiser of the Netherlands. Yet its main focus is organic growth, as it works its way back from weak performance last year, due to a series of issues, from a cyber attack and a failed product launch to a market slowdown and a tax change in India.

The company’s shares are down about 17 percent year-to-date and 27 percent since closing Mead Johnson.

Based in the English town of Slough, Reckitt is also preparing for Britain’s exit next year from the European Union. This includes considering whether it needs to build new product testing facilities in the EU.

“With Brexit it is possible, unless the deal is negotiated in a different way, that we will have to create some labs for testing and quality control outside (Britain),” Kapoor said. “That’s something we’re working on as a scenario.”

“It’s going to cost us more money if we have to and it is duplicating what we already do today. Do I like it? Of course I don’t ... but it’s the kind of impact we have to work on.”

He said it would cost “millions of pounds”.
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