Reckitt to buy Durex condom maker SSL for $3.8 bn

Reckitt to buy Durex condom maker SSL for $3.8 bn

London: Consumer goods group Reckitt Benckiser is to buy Durex condoms and Scholl sandals maker SSL for an agreed £2.5 billion ($3.8 billion) to increase its presence in health and personal care.

The maker of Nurofen painkillers, Strepsils and Lemsip cold remedies is paying 1,171 pence per SSL International share, representing a 33% premium to Tuesday’s closing price. The price includes the 8 pence final dividend.

Reckitt’s health and personal care business has been a key driver of its growth, and the premium being paid for the condom and foot products maker underscores the value attached to key health and consumer brands by large groups looking to diversify.

Reckitt chief executive Bart Becht said the acquisition should increase the group’s health and personal care net revenues by over 36% to around £2.8 billion, one third of the group’s total revenues.

The deal would also provide a step change in the size of its business in China and Japan, Reckitt said, adding it expected cost synergies in the region of £100 million pounds a year from the combined group by the end of 2012.

SSL’s board recommended the offer, which chairman Gerald Corbett said was four times the level of the company’s share price five years ago.

“Reckitt Benckiser is a well regarded company and I am sure our brands and people will be in good hands," he said.

Becht was the best-paid chief executive in the FTSE 100 last year, taking home £92 million mostly due to options and bonuses after Reckitt’s shares outperformed the index by three-and-a-half times over his 10-year tenure.

Shares in SSL rose 33% to the offer price of 1,171 pence, while Reckitt was up 2.2% by 0805 GMT. Analysts said Durex and Scholl would slot into Reckitt’s strategy of focusing on its 17 top brands.

“It’s a great price and I think it’s an excellent strategic fit for Reckitt Benckiser," said Panmure Gordon analyst Damian McNeela.

He said another bidder was unlikely to step in as Reckitt was in a unrivalled position to extract value from SSL by adding its products to Reckitt’s “power brands", which also include Cillit Bang cleaners and Finish dishwash products

Shore Capital said the £2.54 billion price, plus debt of £41 million, represented a “chunky" multiple of 3.2 times sales, but the £100 million of planned synergies made the medium-term multiples more compelling.

“We believe the proposed acquisition represents good business for Reckitt’s, increasing the exposure to consumer healthcare whilst offsetting some of the ongoing challenges from the sluggish European consumer and the uncertainty surrounding (heroin substitution drug) Suboxone," said analyst Darren Shirley.