Reckitt to Buy Boots Unit to Gain Clearasil, Nurofen

Reckitt to Buy Boots Unit to Gain Clearasil, Nurofen

Reckitt to Buy Boots Unit to Gain Clearasil, Nurofen

Oct. 7 -- Reckitt Benckiser Plc, the maker of Lemsip cold-relief capsules, won an auction to buy Boots Group Plc's health-care unit with a 1.93 billion-pound ($3.43 billion) offer, gaining products including Clearasil acne medicine.

Reckitt, based in Slough, England, beat out companies including GlaxoSmithKline Plc and Bayer AG. Reckitt, also the maker of Lysol disinfectants and Veet hair remover, will spend 150 million pounds restructuring the business and expects annual savings of 75 million pounds in three years, it said today in a statement.

The transaction will almost double health-care revenue at Reckitt, which is making its first acquisition since 2003. The price is higher than for equivalent transactions such as Bayer's purchase of the Roche Consumer Health business in 2004 and Novartis AG's acquisition of Bristol-Myers Squibb Co. non- prescription drugs including Excedrin earlier this year.

``Their appetite was perhaps stronger than the others in the auction process and that was reflected in the price,'' said Brian Gallagher, who manages $1.3 billion at Gartmore Investment Management in London. ``They've got to go away and deliver now.''

Reckitt shares rose 50 pence, or 2.9 percent, to 1,758 pence at 9:16 in London. Chief Executive Bart Becht said on a conference call that Reckitt has been looking at the Boots business for at least 10 years.

Boots gained 8.5 pence, or 1.4 percent, to 630.5 pence. The Nottingham, England-based company, which earlier this week agreed to merge with Alliance Unichem Plc, said it plans to return 1.43 billion pounds of the proceeds to investors via a 200 pence-a-share special dividend.

Cost Savings

``From Reckitt's point of view, it's a perfectly sensible deal,'' said Richard Workman, an analyst at Oriel Securities Ltd. in London. ``There are clearly some cost-saving opportunities and they have a good track record at generating those savings.'' Workman has a ``hold'' rating on Reckitt.

Reckitt is paying 3.6 times revenue for the unit, which includes Nurofen painkillers and Strepsils throat lozenges, Becht said. Bayer paid 2.4 times sales for the Roche business, and Novartis paid 2.6 times sales for the Bristol-Myers Squibb unit.

``We're paying for a top-quality portfolio,'' Becht, 49, said on the call. ``Excedrin is the No. 5 brand in the U.S. Here we're talking about Nurofen being the No. 1 analgesic in Europe, Strepsils being No. 1 globally and Clearasil being No. 1 globally.''

Reckitt, the world's largest maker of kitchen and bathroom cleaners with brands including Dettol and Easy-Off, wants to expand its health and personal-care business, which brings in about 15 percent of sales. Boots, the biggest U.K. drugstore operator, is selling its drug-making unit ahead of its planned merger with Alliance Unichem.

Earnings Enhancing

``An opportunity like this doesn't come along every day,'' Reckitt Chief Financial Officer Colin Day said on the call. ``We're comfortable with this deal, we know this business and we believe we know what to do. This wasn't an impulse decision.''

Becht said the transaction will be ``immediately earnings enhancing'' before the costs for restructuring the business. The company expects to cut working capital at the unit by 130 million pounds a year by 2008, he said.

In July, Reckitt raised its goal for annual profit on sales of new products such as Cillit Bang degreaser. Earnings have gained every year since 1999, when the company was created by Reckitt & Coleman Plc's purchase of Benckiser NV.

The company plans to continue with its 300 million-pound-a- year share buyback program in 2006, according to the statement.

Pharmacy Group

Boots put the unit up for sale to focus on its 1,400 U.K. drugstores, where revenue is falling as competition from rivals including supermarkets intensifies. Proceeds in excess of 400 million pounds will be returned to investors, Boots said Oct. 3 when it announced plans to merge with Alliance Unichem.

``This disposal allows us to focus on our plans to create a world class pharmacy-led health-care group,'' Boots Chief Executive Richard Baker said in a statement.

Boots expects the sale to complete in ``early 2006'' and will pay the dividend ``as soon as practicable thereafter.''

The Boots unit had a pretax profit of 87.8 million pounds on sales of 522.7 million pounds in the year ended March 31, making it the company's most profitable.

Reckitt Benckiser was advised on the transaction by Merrill Lynch & Co. Goldman Sachs Group Inc. acted for Boots.

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