LONDON: Reckitt Benckiser lacks the necessary polish for another big deal. After a weak 2017, the Dettol-to-Durex maker offered only vague guidance on margins for the coming year. Baby formula maker Mead Johnson is delivering better than expected savings, but integration has been tricky. No wonder investors are queasy about a possible bid for Pfizer's consumer healthcare arm.
The 44 billion pound company's performance improved towards the end of what was, overall, a poor year. Like-for-like sales increased by 2 percent in the fourth quarter, while Mead Johnson racked up a second quarter of positive sales following nine consecutive quarters of no growth.
Chief Executive Rakesh Kapoor now expects synergies from the deal, which completed in the middle of last year, to be $50 million higher than the $250 million previously estimated.
Reckitt doesn't look in any shape for a mooted bid for Pfizer's consumer healthcare unit, though. The business, which makes Advil painkillers and Chapstick lip balm, could fetch up to $20 billion and offers greater exposure to the US market. But Reckitt's management already has its hands full.
Baby formula is a new category for the company; market share losses in the United States and higher input costs for milk powder have made the integration of Mead Johnson a challenge. Some of the additional synergies announced on Monday will be cancelled out by the costs associated with restructuring the group into two new units. And while Reckitt is deleveraging rapidly, another big deal would stretch its balance sheet. Net debt of 10.7 billion pounds is still close to three times this year's estimated EBITDA.
To soften up investors, Kapoor pointed to Reckitt's successful integration of vitamin group Schiff in 2013 - a transaction that faced similar levels of initial scepticism. But after a 5 percent tumble on Monday morning, Reckitt shares are worth 11 percent less than when the offer for Mead Johnson was announced a year ago.
Reckitt needs to apply greater elbow grease to its current collection of brands before it can justify another big purchase.
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