Reckitt continues shift into Personal Care with SSL acquisition
Reckitt continues shift into Personal Care with SSL acquisition
Reckitt continues shift into Personal Care with SSL acquisition
Consumer-products giant Reckitt Benckiser Group PLC is reaching into the bedroom with its $3.88 billion acquisition of SSL International PLC, the producer of Durex, the best-selling condom brand in the world.
Reckitt has built a big business specializing in hundreds of products to deal with stuff people would rather not talk about, many of them decidedly unsexy: Clearasil acne cream, Mucinex decongestant, Veet hair remover, d-Con mouse traps, Harpic toilet-bowl cleaner, Lysol disinfectants and even a drug for kicking heroin addiction.
With the SSL deal, U.K.-based Reckitt will also add to its portfolio Scholl bunion pads and other foot-care products outside the U.S. (The Dr. Scholl's line of products sold in the U.S. is owned by Merck & Co.)
Health and personal care is already Reckitt's largest business, accounting for £2.1 billion ($3.21 billion) of its total £7.75 billion in revenue last year. Reckitt's annual profit climbed 27% to £1.42 billion.
The £2.5 billion SSL deal takes Reckitt further in
to the lucrative market for over-the-counter health-care products, where it has Strepsils cough drops and Gaviscon heartburn treatment. SSL reported a profit of £71.4 million on sales of £802.5 million for the year ended March 31.
"It's a cute, sexy sector," Garry Watts, chief executive of SSL, said in an interview. "It's still growing fast, it enjoys good margins and if you can innovate, you've got consumers who are willing to buy."
Reckitt CEO Bart Becht said the SSL acquisition would provide a "step change" to its health- and personal-care business, increasing the division's revenue by more than 36% and increasing the division's share of total Reckitt sales to one-third.
Mr. Becht said Reckitt would improve margins in the SSL businesses by engineering £100 million a year in cost savings by the end of 2012, thanks to synergies and the benefits of scale.
Reckitt was willing to pay a premium. The offer of £11.71 a share is 45% above SSL's average share price over the six months ended Tuesday.
Sanford C. Bernstein & Co. senior analyst Andrew Wood said the deal makes strategic sense for Reckitt by enhancing its health- and personal-care business. But he added that Reckitt could have sealed the deal for less, had the company acted earlier. "We do wonder why it has taken management so long to make this happen," Mr. Wood said. He noted that SSL shares were trading below £5.50 nine months ago, as opposed to £8.82 at the close of trading Tuesday.
Reckitt has been on a buying spree in the over-the-counter health-care sector in recent years. It bought Boots Healthcare International in 2006 for £1.93 billion, which brought Clearasil, Nurofen and Strepsils into Reckitt's portfolio. The company acquired Adams Respiratory Therapeutics Inc. in 2008 for $2.3 billion, getting Mucinex.
In health care, shoppers will shell out more for trusted brands. "If you've got a sore throat, runny nose or splitting headache, you want something to sort that out for you and you really don't care how much you pay for it," said Julian Hardwick, a Royal Bank of Scotland analyst.
In marketing Durex, London-based SSL in recent years has moved beyond a "safe sex" message to incorporate a "better sex" theme. It has rolled out the Durex Play line of lubricants and has brought vibrators to pharmacy and supermarket shelves. It also has jumped into emerging markets such as China and India.Durex sales increased 4.8% to £293.7 million for the year ended March 31, adjusting for acquisitions and currency fluctuations.
Reckitt, which reports half-year results next week, approached SSL about a month ago, a person familiar with the matter said. SSL had been in talks to buy the Kiwi shoe-polish brand from Sara Lee Corp. , which has been shedding household and personal-care brands, but those talks recently stalled.
The deal comes as Reckitt faces pressure from rival consumer-goods giant Procter & Gamble Co., which has unveiled new products in air fresheners and dishwasher detergent, two of Reckitt's core categories.
Reckitt, which has boasted a track record of strong performance thanks to successful product innovations and a focus on niche product categories, has been slipping in Europe in recent months, in part because of P&G's push. Reckitt's sales in Western Europe have declined since February, according to estimates from Sanford C. Bernstein, and the company has lost market share in a number of crucial categories.
It is possible another bidder such as Merck, could make an offer for SSL. SSL's shares rose 33% Wednesday in London to £11.77, slightly above the £11.71 offer—indicating investors believe a counteroffer is possible. A person close to the deal said that is unlikely. Reckitt shares rose 3.45%, or £1.10, to £33.00.
J.P. Morgan Cazenove and Lazard Ltd. advised SSL. Deutsche Bank AG advised Reckitt. The deal was funded in part by HSBC Holdings PLC.
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