- Non-core cleaning portfolio sold
- Special dividend to follow
- Focus on faster-growing Powerbrands
Consumer health and hygiene company Reckitt Benckiser (RKT) has agreed to sell a majority chunk of its Essential Home cleaning products division, which houses brands including Cillit Bang, Calgon and Air Wick, for an enterprise value of up to US$4.8 billion or £3.6 billion.
The portfolio is being sold to Advent in a deal that will see Reckitt retain a 30% interest in Essential Home through a stake in the private equity firm’s acquisition vehicle and return disposal proceeds to shareholders through a special dividend.
Despite the positive news, Reckitt Benckiser stock was up just 1.5% at £50.56 in early dealings, with the market perhaps disappointed by the lack of a clean exit and the price fetched for the asset.
Analysts at Jefferies noted the enterprise value of up to £3.6 billion was below the £4 billion expectations in recent press reports and ‘substantially down from an original estimate by many of circa £6 billion’.
FOCUSED ON ‘CORE RECKITT’
In July 2024, Reckitt outlined plans to focus on a portfolio of ‘high-growth, high-margin Powerbrands’ including Dettol, Durex, Gaviscon, Lysol and Nurofen, and revealed it would exit Essential Home and consider options for Mead Johnson Nutrition, its troubled infant formula business.
Essential Home, which operates across the air care, surface, pest and laundry segments, generated roughly £2 billion of sales in 2024 and speaks for less than 15% of Reckitt’s total revenue.
In a statement today, Reckitt said: ‘The transaction is a key part of this strategy and represents a significant step forward in reshaping Reckitt.’
Once the deal completes by the end of this year, Reckitt plans to return excess cash of around $2.2 billion to shareholders in the form of a special dividend, in addition to the firm’s ongoing buyback, with a share consolidation to follow.
WHAT DID THE CEO SAY?
CEO Kris Licht, who expects Reckitt Benckiser’s operating margins to improve in 2025, driven by cost savings from management’s Fuel for Growth turnaround strategy, insisted his charge is ‘executing our strategic plan at pace’.
Licht added: ‘Essential Home will benefit from Advent’s new majority ownership with our retained minority stake in Essential Home providing a potential long-term value enhancement opportunity for Reckitt.’
WHAT NEXT FOR MEAD JOHNSON?
Dan Coatsworth, investment analyst at AJ Bell, said there will be some relief that Reckitt has achieved an exit from Essential Home after recent market volatility threatened to derail the sale.
‘Focus may now switch to the destiny of Mead Johnson Nutrition, the troubled infant formula business whose $18 billion capture in 2017 proved to be a disastrous deal, accounting for many of Reckitt’s current challenges,’ said Coatsworth.
‘It remains a source of litigation risk, which in itself could make achieving any sale a tough ask. Reckitt also has to deal with the continuing challenge from shoppers trading down to supermarket own-brand or cheaper alternatives amid uncertain economic conditions.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
