Consumer goods giant Reckitt Benckiser PLC (LON:RB.) has confirmed it is beginning a strategic review of its food business, which includes French's, the top-selling US mustard brand.
The FTSE 100-listed firm’s confirmation follows a report in the Sunday Times saying the disposal is being considered to help fund its US$16.6bn takeover of US baby food maker Mead Johnson (NYSE:MJN).
In a statement, the maker of Durex condoms and Nurofen painkillers said: "French's Food is a truly fantastic business with great brands, people and a history of outperformance.
“It is nevertheless non core to RB. We have therefore decided to initiate a strategic review of Food where we will explore all options for this great business"
The firm added that it will “update the market going forward, when appropriate.”
Cuts the mustard ...
The foods arm, which had sales last year of £411mln, could fetch more than £2.4bn, according to the newspaper report.
In a note to clients, Whitman Howard analyst Chris Wickham said: “French’s has a reputation for being a high quality hot-dog condiment.
“Based on an assumed 30% tax rate and £127m of trailing operating, such a disposal might imply a 4.0% NOPAT return for a purchaser which for Reckitt would be well beneath its own cost of capital, and thus be a positive move for shareholder value.”
He repeated a ‘buy’ rating and 9,000p price target on Reckitt shares,
In early trading, the stock was up 12p at 7,298p.
Reckitt, which on Friday said it had cut the pay of its chief executive, Rakesh Kapoor after a safety scandal in South Korea, agreed to buy Mead Johnson in February.
The strategic review move mirrors that of fellow FTSE 100-listed consumer products giant Unilever PLC, which was jolted into considering action itself by a rebuffed £115bn bid from US food group Kraft Heinz (NASDAQ:KHC) in February.
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