Reckitt Benckiser is that increasingly rare animal in British corporate life, a big company that's replaced a long-serving CEO without destroying value.
Several of U.K. Plc's horror stories of the past couple of years, from Rolls-Royce to Tesco and Pearson, have a similar script. Dominant chief executive well-liked by investors exits; cue carnage. The reasons seem to be a mix of legacy -- such as Terry Leahy's hard-driven culture on profit targets at Tesco or the Rolls-Royce decision not to invest in the next generation of narrow-body jet engines -- and questions about whether the right successors were chosen.
No such doubts at Reckitt, where Rakesh Kapoor is into a fifth successful year as CEO after taking over from Bart Becht, who ran the consumer goods giant for 12 years to general acclaim.
Since Becht's departure, shares in Reckitt have almost doubled. Since Leahy stepped down in March 2011, Tesco shares have more than halved.
The trick seems to be having the good fortune to take over a company with a decent strategy and to stick with it. That's not an option for CEOs with a more difficult inheritance. But Kapoor has made the best of his strong hand, with Reckitt's financial results on Monday again beating the consensus of analyst expectations on most measures. During his tenure, he's kept up a strong lead over global competitors on profit margin.
It's true he's been lucky to work in a more benign competitive environment than Leahy's successors at Tesco, who've had to cope with the onslaught from German no-frills discounters Aldi and Lidl. Reckitt has benefited from a lengthy restructuring at industry leader Procter & Gamble. Plus he hasn't had to deal with the aftermath of a strategic mistake like Leahy's foray into the U.S.
That's not to say he's simply reaping the rewards from a canny predecessor. Kapoor had to tackle the winding down of growth in Suboxone, Reckitt's money-spinning opioid addiction treatment, after the expiry of the drug’s patent. He was right to spin off the pharmaceutical division, renamed Indivior.
And rather than strategic flip-flopping, or trying to make the business something it's not, Kapoor has largely accelerated Becht's strategy. He's continued the move away from low-growth, lower margin homecare products into consumer health, which is less dependent on the economic cycle. All of this has been oiled with efficiency savings.
This has been rewarded with a valuation well above peers. Reckitt's enterprise value is about about 18 times estimated Ebitda, compared to 14 times at P&G and a 30 percent premium to its European peers.
That's justified given the performance under Kapoor, but it's not to say there are no worries at all. Reckitt's organic sales growth target of 4-5 percent for 2016 looks demanding alongside a squeeze on consumer spending in developed and emerging markets. It warns that double-digit growth in consumer health may not be sustainable, hence its need for acquisitions and an open interest in Pfizer's healthcare business. The weaker performance in home-care seems to make deals imperative.
So life might become tougher, especially if Kapoor has to pay up in a bidding war. Up until now, though, he's avoided any mis-steps of his own. While Becht's bequest was handsome, the beneficiary isn't doing too badly.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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