Reckitt Benckiser Says Spinoff or IPO Possible for Pharma Unit

Apr 16, 2014 3:31 am ET

April 16 (Bloomberg) -- Reckitt Benckiser Group Plc, the maker of Lysol disinfectants, said a separate stock listing is a “strong option” for its pharmaceutical business as it posted first-quarter revenue growth that matched analysts’ estimates.

Non-pharmaceutical sales rose 4 percent, excluding acquisitions, disposals and currency moves, the Slough, England- based company said today in a statement, matching the median estimate of 11 analysts surveyed by Bloomberg. A spinoff or initial public offering of the pharmaceutical unit, rather than a sale of the business, “is emerging” as a possible option, the company said.

“This news signifies the difficulty that Reckitt is having in finding a trade buyer,” Exane BNP Paribas analyst Eamonn Ferry said in an e-mail. “We would not be surprised if this is the case.”

Chief Executive Officer Rakesh Kapoor, faced with slowing growth in some emerging markets and prolonged weakness in Europe, is reviewing the pharmaceutical unit in order to push further into consumer health care through acquisitions and new product development. The company is the frontrunner to buy Merck & Co.’s over-the-counter drugs business, people with knowledge of the matter have said, which would push its health division to more than one-third of sales from about 30 percent.

Reckitt Benckiser shares rose as much as 2 percent to 4,950 pence in London trading. The stock has advanced 2.5 percent so far this year.

Pharmaceutical Revenue

Revenue at the pharmaceutical unit, which makes the opioid- dependency drug Suboxone, declined 11 percent in the quarter as generic versions, introduced last year, continue to grab sales. The market share of Suboxone’s newer film variant, which has narrower profit margins than the tablet that the company discontinued last year, declined by 4 percentage points to 64 percent, the company said.

The maker of French’s mustard said it would provide more information on the Suboxone strategic review when it reports half-year results in July. An April 4 note from JPMorgan said a spinoff of the business “looks increasingly most likely,” and valued the business at 1.3 billion pounds ($2.2 billion).

The company reiterated its forecast for revenue to increase 4 percent to 5 percent at constant currency rates, excluding the pharmaceuticals unit. Total sales at constant rates of exchange increased 3 percent to 2.37 billion pounds ($4 billion), compared with the 2.38 billion-pound average estimate.

Sales at the company’s health division rose 11 percent, a “hugely impressive” figure, according to analyst Graham Jones at Panmure Gordon.

Sales in Europe and North America rose 2 percent, helped by new products and increased distribution of health brands like Scholl footcare and Durex condoms. The U.S. had a “tougher” quarter, the company said, hurt by comparisons to growth in last year’s first quarter.