Reckitt Boss Makes His Name With Mucinex and K-Y Jelly

Replacing a much-heralded chief executive officer isn’t easy. Nobody told Rakesh Kapoor.

Since his surprise appointment as Reckitt Benckiser Group Plc CEO three years ago, Kapoor has won over many who doubted he could match the success of Bart Becht, the Dutchman who presided over a sixfold increase in market value over 12 years at the maker of Lysol cleaners, Nurofen painkillers, and French’s mustard.

After expanding the company’s consumer health care sales with new products and acquisitions -- and now preparing to spin off its prescription-drug business -- 56-year-old Kapoor has cast aside concerns that caused the shares to drop 7.5 percent on the day the appointment was announced.

Though Kapoor still faces challenges with the home-care division and slowing growth in some emerging markets, the stock has risen 59 percent since he took the helm in September 2011, more than double the advance of Britain’s benchmark FTSE 100 Index.

“He was an unknown quantity and was stepping into some pretty big shoes,” said Martin Deboo, an analyst at Jefferies International in London.

In his first year as CEO, India-born Kapoor merged Europe and North America into one reporting unit, ousted the finance chief, and shifted more brand-building resources into emerging markets like Brazil and Russia.

Kapoor has outlined a strategy of expanding sales of over-the-counter brands such as Mucinex decongestants and Durex condoms. While that business accounted for a quarter of 2011 sales -- about the same as the unit that includes laundry products -- consumer health has better prospects. The $200 billion industry is expanding fast due to increasing self-medication among an aging population and drugs moving off prescription.

‘Mainstream Brand’

“He quickly embraced the whole consumer health care shift,” said James Edwardes Jones, an analyst at RBC. “Rakesh articulated it as the No. 1 strategic priority, which was a sense I never got from Bart.”

Mucinex, for instance, was only a nasal decongestant when RB acquired it in 2008. Kapoor has unveiled night-time versions and variants to battle broader cold and flu symptoms and allergies. It’s now the best-selling consumer-health brand in the U.S., up from No. 7 a decade ago.

“Mucinex has moved from a narrow brand into a mainstream brand,” Kapoor said in a June interview.

Kapoor also entered new categories, outbidding Bayer AG to buy vitamin and supplement maker Schiff Nutrition for $1.4 billion in 2012, and last year added health care remedies in China and Latin America. Earlier this year, the company gained global rights to the K-Y brand of sexual lubricants, which it could cross-sell with Durex, a brand that now includes sex toys and has doubled its growth rate over the past three years.

Seeking Jewels

Some difficulties remain. Analysts at Exane BNP Paribas say Kapoor has paid “eye-watering” multiples for acquisitions like Schiff, and vitamin supplements have come under scrutiny in the U.S. Decelerating growth in India and Brazil as well as weakening sales of Air Wick air fresheners also present hurdles.

Yet the health care push has boosted sales across North America and Europe, which grew 3 percent last year while peers like Unilever and P&G struggled in those regions.

“Rakesh fully understands that it’s not good enough just to grow in emerging markets,” said Chris Wickham, an analyst at Oriel Securities. “These health care brands are jewels.”

Kapoor’s search for more such jewels was stymied this spring when Bayer proved willing to pay more for Merck & Co.’s consumer unit. Another possible target disappeared when Novartis AG folded its consumer division into a joint venture with GlaxoSmithKline Plc.

Untapped Areas

Kapoor’s still hunting for deals, and could sell French’s mustard to fund them, according to Sanford C. Bernstein. The prescription-drug spinoff will free Kapoor to focus on untapped areas like Nigeria and South Africa, which he said provide a “vast opportunity” for the company’s Dettol soaps and disinfectants.

As for Becht, Kapoor still sees him for dinner in London a few times a year. Becht, who declined to comment, has a vested interest in Kapoor’s success: He’s co-chief of Joh. A Benckiser, an investment firm that is Reckitt Benckiser’s biggest shareholder, with 10.5 percent.