Consumer health giant Reckitt Benckiser Group Plc (LON:RB.) could spearhead a wave of mergers and acquisitions in the consumer health industry, it was claimed on Friday.
Reckitt appears set to be a major participant “and arguably the salient beneficiary” of a major sector consolidation process, according to broker Whitman Howard.
Separately, market rumors were circulating in London on Friday that Reckitt, which makes Nurofen pain relief tablets, Strepsils lozenges and Durex condoms, is running the rule over New York-listed rival Perrigo Company plc (NYSE:PRGO).
Other major market players also said to be eyeing Perrigo, which is thought to make about 53% of its revenue from over-the-counter (OTC) drugs, include Proctor & Gamble Co (NYSE:PG) and Johnson & Johnson (NYSE:JNJ).
Private equity groups are also rumored to be interested, but they are thought more likely to break up the group and sell off more specialist businesses such as prescription drugs to pharmaceutical companies.
Market gossips reckon advisers to potential bidders have sounded out Perrigo’s shareholders on a potential bid and been told they would be receptive to an offer of not less than US$180 a share.
A market source with knowledge of the situation said: “They’re looking for a hefty premium of minimum double the share price.”
Perrigo’s shares were trading at US$94.21 in early trading in New York. Reckitt's shares closed 19.25p, or 0.26%, up at 7,448.25p.
A spokesman for Perrigo said: "We do not comment on market rumours." Reckitt Benckiser also declined to comment.
Last month, a report claimed Perrigo was close to an agreement to be bought by a UK-based company for $US20bn, although it did not name the latter.
The report in StreetInsider.com cited a source as saying Morgan Stanley (NYSE:MS) was advising Perrigo and Barclays PLC (LON:BARC) was among institutions advising the UK company.
Drug company Mylan tried to buy Perrigo last year, but former Perrigo chief executive Joe Papa fended off the US$26bn hostile bid.
Whitman Howard, which has a ‘buy’ rating on Reckitt and a price target of £90, has flagged the potential for major consolidation in the consumer health industry.
The broker's Chris Wickham said: “Our prognosis was that with so many of the larger pharmaceutical industry operators generating substandard margins in consumer health, significant value was likely to be added in a major sector consolidation process.
“Not only has this consolidation yet to take place on a large scale, but also Reckitt Benckiser appears set to be a major participant and arguably the salient beneficiary.”
The broker said Reckitt has re-rating potential due to its ability to grow faster than its sector peers and its exposure to overseas markets, with only 10% of its profits believed to be made in the UK.
Other indicators of re-rating potential include strong free cash flow conversion and the potential for substantial consolidation within consumer health, the broker said.
Perrigo, based in Ireland, claims to be the world's largest manufacturer of OTC products and supplier of infant formulas for the store brand market.
The company is also a leading provider of branded OTC products, generic extended topical prescription products and receives royalties from multiple sclerosis drug Tysabri.