2nd UPDATE: Reckitt Benckiser Agrees GBP2.54B Offer For SSL

21st Jul 2010 08:38

(Adds detail.) By Jason Douglas and Michael Carolan Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Reckitt Benckiser Group PLC (RB.LN) Wednesday added condoms and insoles to its stable of products, as it continued to reposition itself as a personal care company with the GBP2.54 billion acquisition of SSL International PLC (SSL.LN). Reckitt said it would pay 1163 pence in cash per SSL Share as well as pay a dividend of 8 pence per share, valuing the company at GBP2.54 billion. It will also assume SSL's GBP41.1 million debt. Reckitt said the acquisition of SSL would add Durex condoms and Scholl footcare products to its stable of "powerbrands" and will immediately boost earnings. The market welcomed the deal and by 0725 GMT, Reckitt's shares were up 111 pence, or 3.5%, at 3300 pence, while SSL's were 293 pence, or 33%, higher at 11.75 pence. Chas Manso, Evolution analyst, said the deal's key benefit is to accelerate Reckitt's shift to the faster-growing and higher-margin health and personal care sector, and away from the more sluggish household products categories. Reckitt Chief Executive Bart Becht said the acquisition of London-based SSL will mean a step change for Reckitt's health and personal care products unit. It is anticipated the acquisition will increase revenue at the unit by 36% to roughly GBP2.8 billion, or one third of the group's total sales. Shore Capital analyst Darren Shirley said he expects the pace of innovation for Scholl and Durex to increase under Reckitt, while the greater distribution capability will increase the underlying growth rate of the brands. Shirley said that while the price looked "chunky," the targeted cost savings make the medium-term price "considerably more compelling." The company is targeting GBP100 million of cost savings by the end of 2012 from closing administration functions and improving procurement. Shore's Shirley said Reckitt has a good track record of integration, so "synergy targets can and be achieved, and may indeed be exceeded over time." Reckitt can certainly afford the deal. Its strong cash flow means it quickly pays down debt and had net cash of GBP663 million at the end of the first quarter. "The strategic rationale has been apparent for quite some time," said Evolution's Manso. Becht added the deal will also materially enhance the scale and critical mass of Reckitt's business in China and Japan. Due to its well-known brands, global reach and expanding sales, SSL has frequently been the subject of takeover speculation in recent years, with Reckitt and others, including France's L'Oreal S.A. (OR.FR), named as likely suitors. The deal has been rumored since 2003, when SSL received an approach--reportedly from Reckitt--but talks eventually came to nothing. Reckitt Benckiser's offer represents a premium of 32.8% to SSL's closing price Tuesday and is four times SSL's share price five years ago, according to SSL Chairman Gerald Corbett. Reckitt Benckiser is funding the cash offer with a new GBP1.25 billion loan facility arranged by HSBC Bank PLC, together with Reckitt's working capital and existing facilities. Deutsche Bank acted as financial adviser to Reckitt on the deal. -By Jason Douglas, Dow Jones Newswires; 44-20-7842-9272; [email protected] (END) Dow Jones Newswires July 21, 2010 03:38 ET (07:38 GMT)