As consumer products merger and acquisition activity revives, analysts are speculating which players in the personal care arena may be winding up for deals, with U.K.-based Reckitt Benckiser named a likely suspect.

U.S.-based Kraft Foods' pending hostile takeover bid for Cadbury, a U.K. company worth about $17 billion, seems to have investors hopeful for other possible transactions on both sides of the Atlantic.

Reckitt widely is rumored to be preparing to make a major, cross-border deal to acquire additional OTC health care brands.

Though the firm primarily sells household cleaning products, recent acquisitions have built up its consumer health and personal care portfolio.

The company's personal care offerings include the Clearasil acne-treatment skin care brand acquired through its acquisition of Boots Healthcare in 2005 as well as the Mucinex expectorant range, which it acquired as part of its $2.3 billion purchase of Adams Respiratory Therapeutics in late 2007 (¹ Also see "Reckitt Benckiser Looks Overseas To Double Adams’ Revenue" - Pink Sheet, 17 December, 2007.).

Durex Marketer A Fitting Partner

Many analysts see SSL International, a firm that markets personal care brands including Durex condoms and Scholl foot care products, as a good fit for Reckitt.

As SSL also is based in the U.K., however, it would not be the rumored cross-border deal.

During a Nov. 24 interview, Lauren DeSanto, an analyst for Chicago-based investment research company Morningstar, agreed that Reckitt is in a good position to move forward with a deal.

DeSanto said SSL makes a strong candidate considering its portfolio of products, which in addition to Durex and Scholl includes oral analgesics, baby care, deodorant and anti-cellulite products marketed on a regional basis in Europe.

A benefit of SSL is that its products likely would present low regulatory risk, she said. "You wouldn't expect to see regulatory issues with Scholl," she said.

SSL's sales for the six months ended Sept. 30 grew 21.2 percent to 390 million U.K. pounds ($649.3 million at a Sept. 30 exchange rate). In light of the acquisition talk, SSL's stock price jumped 3.5 percent to reach a nine-year high on Nov. 19.

Reckitt acquisition buzz stemmed from a recent story in London's Daily Telegraph claiming that sources say a transaction is imminent, with Colgate-Palmolive named as the most likely partner.

Due to Colgate's size, however, such a transaction likely would necessitate a merger; Colgate's market capitalization is about $41 billion and Reckitt's is around $37 billion.

DeSanto believes Colgate is an unlikely partner given its large size and the fact it would get little from the deal considering its strategy to focus on high-margin personal care brands, especially oral care. "Colgate just doesn't make sense," she said.

A smaller firm with a narrower health portfolio is a better fit, she said. "I wouldn't see [Reckitt] buying Chattem or Prestige Brands either, but I would think those companies would at least make sense."

Chattem markets brands including ACT mouthwash, Dexatrim weight-loss supplement and Gold Bond ointment, while Prestige Brands markets Chloraseptic sore throat relief products and Denorex anti-dandruff shampoo.

Bolt-on acquisitions or acquisitions of entire companies with brands that fit "strategically" within Reckitt's portfolio would be more in line with the approach the company has taken in the past, DeSanto said.

She believes Reckitt is more likely to eye non-U.S. opportunities since it already has a strong foothold in the U.S. following its acquisition of Adams.

A European seller is a possibility, as is one based in a developing market such as India and China, where Reckitt already has some penetration and is looking to grow, she said.

During an Oct. 27 third-quarter earnings report, Reckitt noted that developing markets - including China and India - account for 19 percent of net revenue, while North America and Europe account for 27 percent and 47 percent, respectively.

Reckitt has refused to comment on any acquisition possibilities, saying only that it does not comment on rumors.

Other Acquisition Possibilities

The time is right for Procter & Gamble to move forward with another acquisition, many analysts believe.

During a presentation at a Morgan Stanley investor conference Nov. 19, P&G CFO Jon Moeller addressed what he described as "continuous speculation" regarding its merger, acquisition and disposal plans.

"Acquisitions are not part of our core growth strategy," Moeller said. "They cannot be counted on or predicted and particularly in our case since we don't pursue hostile bids."

However, he noted that the company will continue to seek opportunities that leverage its "core capabilities" in the way that its acquisition of Gillette did (² Also see "Consumer Shakeup: Procter & Gamble Swallows Gillette" - Pink Sheet, 31 January, 2005.).

DeSanto said P&G likely will shrink before growing its business, noting the company has plenty of businesses it could sell to save money for strategic purchases.

The excitement stirred over the Cadbury/Kraft deal is "kicking up dust in places where it probably shouldn't," she said, including in ongoing rumors regarding the fate of Colgate.

For years it has been rumored that Unilever and Colgate could present a good merger/acquisition duo, with those rumors resurfacing in recent months in some analyst circles.

- Eileen Francis ( ³ e.francis@elsevier.com )

Reckitt Benckiser Tops Acquisition Speculation In Personal Care

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