Reckitt Benckiser hungry for new health deals

LONDON Wed Sep 11, 2013 9:32am EDT

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

Reckitt Benckiser CEO Rakesh Kapoor speaks during the Reuters Global Consumer and Retail Summit in London September 11, 2013.

Credit: Reuters/Benjamin Beavan

LONDON (Reuters) - Reckitt Benckiser Group (RB.L) will be a major player in a coming shakeout of the global consumer health industry and has the firepower to do sizeable deals, its chief executive said.

Speaking at the Reuters Consumer and Retail Summit on Wednesday, CEO Rakesh Kapoor predicted that the industry, which covers vitamins to over-the-counter medicines to condoms, will see a wave of deals.

"Consumer health is one of the most fragmented markets in the world, and that is a real issue-stroke-opportunity," Kapoor said. "This fragmentation will result in consolidation - the only question is who, when and how."

Kapoor, who has been in the top job for just over two years, added that: "My personal opinion is that RB will be in the camp of aggregators or consolidators."

"We have the capability to do interesting size M&A," he said, even though British-based RB is still paying down debt from last year's $1.4 billion purchase of U.S. vitamin and supplements maker Schiff Nutrition.

Large pharmaceutical companies dominate the consumer health market. But they are pruning their portfolios to unlock shareholder value.

Pfizer (PFE.N) has led they way in such divestments but others are following suit, with Bristol-Myers Squibb (BMY.N) selling RB the rights to market some of its non-prescription remedies in Latin America earlier this year.

GlaxoSmithKline (GSK.L) this week agreed to sell its Lucozade and Ribena soft drinks to Suntory Beverage & Food (2587.T), while some other drugmakers with consumer healthcare brands, including Novartis (NOVN.VX), are reviewing their portfolios.

RB still gets most of its sales and profits from cleaners and disinfectants like Lysol, Finish and Cillit Bang, but a string of health deals over the last decade means consumer healthcare now accounts for about a quarter of revenue.

Over-the-counter health products tap into consumer and demographic trends such as aging populations, ballooning healthcare costs, and more interest in wellness.

They also enjoy brand loyalty, fat margins and strong growth, and because of that they don't come cheap.

"We are talking about assets which are probably the most prized assets in the consumer space," Kapoor said. "There will be premiums."

That is not deterrent to RB, which last year beat out Germany's Bayer (BAYGn.DE) with a higher bid for Schiff.

Kapoor said RB's M&A track record and consumer goods history gives it an advantage in finding synergies that could help it justify higher premiums.

$200 BILLION INDUSTRY

Johnson & Johnson (JNJ.N) is the biggest player in the global consumer health industry - worth nearly $200 billion at the retail level - with about 4 percent of the market, followed by Bayer (BAYGn.DE) and GSK. Other firms are relatively small, such as Merck & Co (MRK.N), with around 1 percent of the market.

In the past decade, RB was largely a buyer of businesses, with some of the biggest deals being Boots Healthcare International in 2006, Adams Pharmaceutical in 2008, and Durex condom maker SSL in 2010. But in the future, there should be divestitures as well, Kapoor said.

"Our next 10 years, in my opinion, will be a combination of the two," he said.

RB has two non-core businesses - one that sells mustard and sauces, and one that sells Suboxone, a prescription drug to treat addiction to heroin and other opioids.

Suboxone, a film that dissolves under the tongue, is facing competition from cheaper generic tablets. RB shares took a hit in July when U.S. healthcare provider CVS Caremark (CVS.N) dropped coverage of the film in favor of the pills.

Investors fear profits could tumble if other providers follow CVS, fuelling speculation that RB might be better off selling the business, which analysts have estimated could fetch some 2 billion pounds ($3.1 billion).

Kapoor said he would continue to review options but it was not clear at present that another firm would be a better owner.

Since Kapoor, 55, took over the top job at RB, its stock has risen 35 percent, outperforming gains of 27 percent for the Britain's FTSE 100 share index .FTSE and 33 percent for the Stoxx European personal and household goods index .SXQP.

The shares tumbled on the day in April 2011 when the Indian-born RB insider was named to replace CEO Bart Becht, one of the FTSE's longest-serving and highest-paid executives.

Becht led the company since the 1999 merger of Britain's Reckitt & Coleman with Benckiser from the Netherlands. The stock ended that year at about 660 pence and in the month before Becht announced his departure it was around 32 pounds on the back of earnings growth that consistently beat expectations.

(For other news from the Reuters Global Consumer and Retail Summit, click here)

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(Editing by Jane Merriman)

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