Reckitt Benckiser Agrees to Buy SSL for $3.9 Billion
The takeover will increase Reckitt’s health and personal-care sales by more than 36 percent, to one third of the company’s total net revenue, CEO Bart Becht said. Photographer: Chris Ratcliffe/Bloomberg
Bottles of Cillit Bang cleaner sit displayed on a shelf at the Reckitt Benckiser Plc headquarters in Slough. Photographer: Chris Ratcliffe/Bloomberg
Reckitt Benckiser Plc agreed to buy Durex condom maker SSL International Plc for 2.54 billion pounds ($3.9 billion), bolstering its health and personal-care business in the biggest acquisition since the company was formed in 1999.
Reckitt’s offer is worth 1,171 pence a share, 33 percent more than SSL’s closing price yesterday. SSL rose 33 percent in London trading, the most ever. Reckitt, the maker of Cillit Bang cleaners and Nurofen painkillers, gained 3.5 percent.
Buying SSL meets Chief Executive Officer Bart Becht’s aim of expanding in health and personal care as growth slows in Reckitt’s larger household cleaners unit. The takeover will help compensate for a slump of as much as 80 percent in U.S. sales of the Suboxone heroin-dependency drug, Reckitt’s fastest-growing product, when generic versions of the product enter the market.
“It’s a very good fit and they will be able to do a lot with the brands,” said Julian Hardwick, an analyst at RBS. “When you take all that into account, the multiples they are paying are reasonable,” he said. Hardwick has a “buy” rating.
Reckitt is paying about 18 times SSL’s earnings before interest, taxes, depreciation and amortization, according to Bloomberg data. The maker of Veet hair remover paid almost 30 times Ebitda for the $2.3 billion purchase of Adams Respiratory Therapeutics Inc. in 2008, its last major acquisition.
Multiples
RBS’s Hardwick said the industry typically pays multiples around “the mid-teens.” The price for SSL is supported by the increased scale resulting from the deal, potential cost savings and the acquisition record of the bidder’s management, he said.
Reckitt said it expects savings of about 100 million pounds a year in the combined group by the end of 2012.
“The price seems more reasonable considering proposed synergies of 12.5 percent of SSL sales, which are at the high end of comparable acquisitions, and given its excellent track record,” Bernstein Research’s Andrew Wood said in a report.
The transaction brings the volume of deals in Europe this year to $368 billion, up 6.8 percent on the same period of 2009.
SSL rose 295 pence to 1,177 pence in London trading. Reckitt gained 110 pence to 3,300 pence.
The takeover will increase Reckitt’s health and personal- care sales by more than 36 percent, to one third of the company’s total net revenue, Becht, 53, said in the statement.
Growth Target
Reckitt’s health and personal care unit generated about 2.08 billion pounds in sales last year, or about 27 percent of the total. The company sells household cleaners such as Vanish stain remover and Finish dishwashing detergent. About 7.6 percent comes from pharmaceuticals.
Reckitt has targeted revenue growth, excluding its pharmaceutical division, of 5 percent in 2010. SSL reported comparable sales growth of 4 percent last year, which Reckitt expects to accelerate through innovation and by increasing distribution of condoms and footcare.
“It brings Reckitt into two categories new to the company and does little to strengthen the troubled core areas of fabric care, dishwashing, and over-the-counter drugs,” Pablo Zuanic, an analyst at Liberum Capital said. “It’s an expensive deal, with questionable strategic fit.”
Reckitt said the purchase will immediately add to earnings per share, excluding restructuring charges, and “materially enhance” the company’s scale and critical mass in China and Japan. Buying SSL will also add two so-called Powerbrands to the company, bringing Reckitt’s total to 19.
‘Worthy of Consideration’
SSL shareholders will receive 1,163 pence a share and be entitled to a dividend of 8 pence a share.
“It’s worthy of consideration by our shareholders,” said SSL Chairman Gerald Corbett. “Five years ago, our market capitalization was around 400 million and we’re now on 2.5 billion” pounds, he said. “Reckitt have a bigger distribution than us and I suspect will get more revenue synergies.”
The executive wouldn’t comment on any potential changes in management or sale of any brands. Corbett said he will stay until the deal is “unconditional.”
The condom maker was created through a series of mergers, including Seton Healthcare Plc and Scholl Plc in 1998 and London International Group Plc in 1999, according to its website. The company traces its roots back to the foundation of Scholl Plc in 1904 when Dr. William Scholl sold footcare products and footwear under the eponymous brand. London International started selling imported condoms and barber shop supplies in 1915 as the London Rubber Company, according to SSL’s website.
Advisers
SSL now gets about 42 percent of sales from branded condoms and about 36 percent from foot-related brands, Bloomberg data show. SSL reported sales of 802.5 million pounds in the year ended March 31, and operating profit of 126 million pounds.
SSL directors were advised by JPMorgan Cazenove and Lazard. Credit Suisse also acted as joint corporate broker to SSL with JPMorgan Cazenove. Deutsche Bank AG advised Reckitt.
The deal is being funded by a new 1.25 billion-pound loan facility with HSBC Bank Plc, along with existing facilities and Reckitt’s own resources, the statement shows.
To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.
Rate These Stories
Rate this Page