Reckitt Benckiser eyes pharmaceutical unit spin-off – Financial Times

Reckitt Benckiser says it is leaning towards a spin-off of the pharmaceuticals division it put under strategic review in October.

The maker of Nurofen painkillers and Durex condoms said a “capital markets solution” was emerging as a “strong option” for the unit, RBP – which analysts took to mean either an initial public offering or a spin-off to existing shareholders.

Reckitt, under current chief executive Rakesh Kapoor and his predecessor Bart Becht, has been keen to focus on its 19 “power brands”, which are sold in almost 200 countries and include such household staples as Finish dishwasher tablets and Gaviscon heartburn remedy.

The company is also moving into the market for “sexual wellbeing”, having last month agreed to buy the K-Y lubricants brand from Johnson & Johnson.

RBP, which produces the Suboxone heroin substitute, is seen by the FTSE 100 company as non-core and details financial performance excluding the division in its results statements.

In a note at the end of last month, Deutsche Bank analyst Harold Thompson said a fair valuation of RBP would be £2.9bn, equal to £4 per Reckitt share.

Reckitt in February appointed Howard Pien, an executive with experience in pharmaceuticals, as an adviser to the strategic review. He will become chairman of RBP in the event of a spin-off.

The news came as Reckitt reported first-quarter sales from continuing operations – excluding pharmaceuticals – up 4 per cent at constant currencies to £2.2bn, although the three-month period had been affected by “strong foreign exchange headwind”. At actual exchange rates, revenues fell 6 per cent.

The company’s health division posted like-for-like sales up 11 per cent, but RBP declined by the same amount. The pharmaceuticals division is expected to account for about 7 per cent of Reckitt sales and 13 per cent of operating profits in 2014.

Mr Kapoor said RBP had delivered an “excellent result” as it maintained a 64 per cent market share in Suboxone with its film variant, which is placed under the tongue, despite the backdrop of increasing competition from generic alternatives.

RBP lost exclusivity on the tablet form of the heroin substitute in 2009 and the first generic alternatives came on to the market last year.

Reckitt maintained its targets for full-year sales growth of 4-5 per cent, at constant currencies, and flat to moderate operating margin expansion.

Reckitt shares were up less than 1 per cent in early Wednesday trading, at £48.74.