HEARD ON THE STREET: Reckitt's A Hit In The Bedroom

21st Jul 2010 18:51

By Hester Plumridge A DOW JONES COLUMN Not content with dominance in the bathroom and kitchen, Reckitt Benckiser Group PLC (RBGPY, RB.LN) is pushing into the bedroom. Investors welcomed the consumer products group's decision to buy Durex condom manufacturer SSL International PLC (SSL.LN) for GBP2.54 billion, sending its shares up 3.4% Wednesday. Rising sales and increasing product sophistication in consumer health care make the acquisition look shrewd for Reckitt. True, the price looks high. At GBP11.71 a share, including a promise to pay the final dividend of 8 pence per share, Reckitt's offer is at a 33% premium to SSL's undisturbed share price. Add in GBP214 million of net debt and Reckitt is paying a hefty 19.8 times 2009 earnings before interest, taxes, depreciation and amortization for the business. Recent transactions in branded health care have been at just under 18 times enterprise value, notes Goldman Sachs. But Reckitt is looking for cost savings worth GBP700 million, once taxed and capitalized. If the company can deliver these, and its acquisition track record suggests it will, the multiple falls to a more manageable 13 times. Acquiring SSL will strengthen Reckitt's push from traditional household products into the faster-growing and higher-margin consumer health-care market, boosting health care's share of revenues from 16% five years ago, to 36%. Reckitt's health and personal care revenues grew 14% in 2009, versus low-single digit growth in homecare. SSL's portfolio includes products such as gels to make sex more pleasurable, and pads to cushion feet in high heels. SSL will also boost Reckitt's distribution in developing markets such as China, and provide a strong presence in Japan, where it had only a scant foothold. The acid test will be whether Reckitt can use its impressive branding expertise and huge salesforce to boost SSL's revenue growth from 4% in 2009. But, trading at 10.2 times 2011 earnings before interest, taxes and amortization, according to UBS, Reckitt's shares are in line with those of European health and personal care peers. Its push into the bedroom should add a little excitement to the shares. (Hester Plumridge is a writer for Heard on the Street. She can be reached on +44 20 7842 9267 or [email protected]) (TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at [email protected]. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.) (END) Dow Jones Newswires July 21, 2010 13:51 ET (17:51 GMT)