Reckitt’s billion dollar takeover war chest

Giant’s debt-fuelled plan to kick start growth by buying up rivals

CoNSUMER goods giant Reckitt Benckiser is set to spend billions on takeovers as it separates its health and hygiene home divisions.

The Durex and Cillit Bang owner said it has ‘not ruled out’ acquisitions, fuelling speculation it wants to pile on debt to buy Pfizer’s nonprescription drugs business.

The revelation came as it unveiled a major shake-up in its business structure, which will be split into two units, RB Health and RB Hygiene.

The health division, which includes brands like Nurofen and Gaviscon, will be headed by chief executive Rakesh Kapoor while the hygiene home division, which includes brands like Cillit Bang and Veet, will run by Rob de Groot, who heads Reckitt’s European and Russian businesses.

Kapoor will maintain control of the whole business, with de Groot reporting to him. It came as Reckitt cut forecasts for the second time this year, warning sales would stay flat.

Like-for-like sales fell 1pc year over year in the third quarter to £3.2bn, a small improvement on its 2pc second-quarter decline.

Including a boost from currency exchange rates and its June acquisition of baby formula firm Mead Johnson, sales rose 30pc.

Despite the small improvement Reckitt, which had already cut its growth target from 3pc to 2pc, said it now expected underlying revenues for the year to come in flat – its worst result since 1999.

Reckitt said that the fallout from a cyber-attack, a failed product launch and a boycott over a safety scandal in South Korea had affected its business. The firm was among a number of consumer good companies to be hit by the global cyber-attack in June, which started in Ukraine and crippled software systems.

It was further hit by its flop Scholl wet and Dry foot product and a boycott of its products in South Korea after its steriliser product oxy Sacsac, which was put inside humidifiers, was linked to a spate of fatal lung problems between 2001 and 2011.

Like consumer goods rivals Unilever and Procter & Gamble, Reckitt has been seeking to boost performance across its divisions.

It completed the sale of its French’s mustard food business to US group McCormick in August, which had long been viewed as a non-core part of the company’s business.

Kapoor added that the firm wanted to be a global leader in consumer health and it had ‘not really realised [its] full opportu- nity there’. The comments have fuelled speculation in the City that the restructuring is a prelude to a full spin-off of the home hygiene division, which could finance a takeover of Pfizer’s consumer health business.

Last week, Pfizer said that it was looking to sell its consumer healthcare business, which includes drugs like painkiller Ibuprofen and Centrum multivitamins, in a move that could fetch up to £11bn.

The business has long been seen as a target for Reckitt.

The firm, however, is already saddled with debt following its £13.2bn takeover of American formula maker Mead Johnson, which makes Enfamil products.

Sales at Mead Johnson rose 1pc in the third quarter, boosted by growth in China – but rival Danone reported a 50pc jump in Chinese baby food sales in the quarter on Tuesday.

Bernstein analyst Andrew wood said he expects Reckitt’s net debt to be roughly 3.1 times its full year’s earnings.

He estimated this would increase to almost six times if it bought the Pfizer unit.

But Adrian Hennah, chief financial officer, has not ruled out acquisitions and is prepared to see its credit rating fall a notch to triple-B ‘if something spectacular came along’.