Britain's Reckitt Benckiser Goes Shopping

Bart Becht spent $3.89 billion on condoms and foot care last month. Becht is not a man of unusual proclivities. He's the chief executive officer of Reckitt Benckiser, one of Britain's most successful companies. On July 21, he announced the biggest deal of his career: the purchase of SSL International, maker of Durex condoms and Scholl foot products. The acquisition is meant to shore up Reckitt's revenue growth, which at 18 percent last year was higher than that of any consumer-products rival.

The Slough (U.K.)-based maker of Clearasil acne cream and French's mustard faces challenges. It has seen a slowdown in Europe, its main market. Its core business in household cleaners is under siege there from Procter & Gamble (PG), which has launched detergents and stain removers that directly compete with Reckitt's Finish and Vanish brands. What's more, Suboxone, a heroin-dependency drug that generates 8 percent of Reckitt's sales, may soon have competition in the U.S. from generics. "It's been five or six quarters where Europe is relatively flat, North America is marginally up, and most of the growth is coming out of emerging markets," says Becht. "We do not see that trend changing in the near term."

Still, many executives would count themselves lucky to be in Becht's shoes. With revenues of $12.1 billion in 2009, Reckitt may be a minnow next to P&G. Yet the smaller company's stock has climbed fourfold in the 10 years Becht has been at CEO, vs. 8.9 percent for its American rival. And aside from Johnson & Johnson (JNJ), Reckitt boasts the highest gross margins in the industry, at 60 percent. "Ever since Bart Becht took over in 1999, this has been the best management team in the sector, undisputably," says Dan Dolev, an analyst at Sanford C. Bernstein (AB) in New York.

Becht, who ranks as one of the highest-paid CEOs in the U.K., says Reckitt has thrived in part because of a culture of constructive conflict. "It's not technology that drives innovation; it's ideas," says the 54-year-old Dutchman. "At the end of the day we need to have a fight for better ideas."

Becht recalls the epic fight that one employee waged on behalf of Air Wick Freshmatic, a battery-operated dispenser that sprays air freshener at set intervals. Until five years ago, Reckitt sold the gizmo only in Korea. Then a category manager came up with the idea of adapting it for other markets. Colleagues called the notion "completely nuts," says Becht, as the product had been developed for use in commercial spaces and offices, not homes. Becht backed the manager; today Air Wick Freshmatic is sold in 69 countries and accounts for a fifth of the home-care division's $1.6 billion in annual sales.

Internecine battles can take a toll, Becht concedes. At 15.7 percent, turnover among Reckitt's top 400 international managers exceeded the industry average last year. The company has begun to recruit at universities based on Becht's newfound belief that it is better to promote from within than to hire outsiders. As part of Reckitt's outreach effort to young people, the company's Facebook page features a game presenting players with challenges such as coming up with packaging for the company's Veet line of hair-removal products. Contestants who perform well at each task can eventually work themselves up to company president.

Most analysts believe that the Durex and Scholl brands are good fits for Reckitt. For one thing, they will provide greater exposure to Russia and China, two vast consumer markets where the company has a low profile. Says Becht: "The opportunity is geographical rollout but also for innovation in the markets we're already in."

The Bottom Line: Reckitt Benckiser's biggest acquisition to date is meant to counter weakness in its household cleaners business.

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