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Reckitt clears way for GSK to buy Pfizer's consumer healthcare unit after ending talks

“An acquisition for the whole Pfizer consumer health business did not fit our acquisition criteria," said Reckitt boss Rakesh Kapoor
Reckitt
Reckitt said organic growth would remain its priority

Reckitt Benckiser Group PLC (LON:RB.) has pulled out of the race to buy Pfizer Inc’s (NYSE:PFE) consumer healthcare business, clearing the way for a takeover by GlaxoSmithKline plc (LON:GSK).

Chief executive Rakesh Kapoor said: “An acquisition for the whole Pfizer consumer health business did not fit our acquisition criteria and an acquisition of part of the business was not possible.”

Shares in Reckitt jumped 5.5% to 5,936p in morning trading. 

READ: Reckitt Benckiser's bid to buy Pfizer unit a step in the right direction, says JP Morgan

The consumer goods giant’s exit from the sale process puts GSK in a leading position to secure the unit. 

GSK is understood to be working on a deal for the business, sources told Reuters, adding that it is possible Pfizer will receive more offers by Thursday’s deadline for bids.

Reckitt to focus on reorganisation  

Kapoor said Reckitt’s priority would remain organic growth, the integration of baby formula business Mead Johnson Nutrition and creating value from splitting the business into two divisions - health and hygiene home.

“We always approach inorganic growth opportunities in a rigorous, disciplined, and financially responsible manner to ensure long-term value creation for shareholders,” he said.

Pfizer is hoping in receive as much as US$20bn for its consumer health unit, which includes Chapstick lip balm and Advil painkiller brands.

Pfizer deal likely to boost GSK earnings

For GSK, a deal to buy the unit would strengthen its position in consumer health, an area that has seen growing demand from health-conscious consumers and the ageing population.

GSK’s consumer healthcare business is currently run via a joint venture with Norvatis AG, which has the right to sell down its minority stake from this month.

“You would expect us to take a serious look at any leading and very appealing assets in the sector because we are a world leader in consumer healthcare and have a very good track record of integrating businesses successfully,” Emma Walmsley, who took over as chief executive last April, said last month.

“We will be extremely focused on discipline around returns and frankly, this is not a need to do.”

READ: GlaxoSmithKline winning over City number crunchers

A deal is expected to boost earnings at a time when GSK has been tackling rising competition in its core respiratory and HIV divisions. 

GSK could get more favourable price for Pfizer unit, says Liberum

"With Reckitt out, GSK could potentially get a more favourable price than we had previously imagined," said Liberum.

"A deal at 19x enterprise value/earnings before interest, tax, depreciation and amortisation would be c.9% earnings accretive, value accretive by year 4 and add 8% to net present value. "

However, Liberum also thinks it is possible Pfizer might decide not to sell the asset at such levels. GSK may also conclude the deal isn't a priority at a valuation Pfizer would accept, the broker said.

"Irrespective of these considerations, we expect GSK to be weak until the situation is resolved (vis a vis the dividend) particularly given relative (vs sector) out-performance year to date."

Shares in GSK were little changed at 14.96p. 

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