The FTSE 100 giant had previously set aside US$400mln to cover the cost of the investigations, but it will now up this provision to an eye-watering US$1.5bn.
The settlement relates to a Department of Justice investigation which accused Indivior, the prescription pharmaceuticals business spun out of Reckitt in 2014, of illegally boosting prescriptions of Suboxone – its blockbuster opioid addiction treatment.
An indictment back in April claimed Indivior had marketed its star drug as safer and less abusable than other treatments, deceiving healthcare providers and allowing the company to rake in billions of dollars in extra sales.
It was also accused of pushing patients towards doctors who it knew were prescribing opioids “at high rates and in a clinically unwarranted manner”.
Reckitt continues to deny the allegations but said it would settle the claims to avoid further litigation and uncertainty.
Not an admission of wrongdoing
“While RB has acted lawfully at all times and expressly denies all allegations that it engaged in any wrongful conduct, after careful consideration, the board of RB determined that the agreement is in the best interests of the company and its shareholders,” said Reckitt in a press release.
“It avoids the costs, uncertainty and distraction associated with continued investigations, litigation and the potential for an indictment at a time of significant transformation under RB 2.0 and during CEO transition.”
Analysts at City broker Liberum agreed with the company’s view: “The settlement at up to US$1.5bn, while larger than the existing US$400mln provision, is a necessary price to pay to close off this investigation and enable RB to move forward with the completion of its RB 2.0 program and transformation under new CEO Laxman Narasimhan.”
Shares react surprisingly well
In lunchtime trading, shares in Reckitt Benckiser were 2.4% higher at 6,580p.
Russ Mould, investment director at AJ Bell commented: “Being forced to foot a US$1.4bn bill would normally be cause for anger and alarm, to say the least. However, shareholders of consumer goods firm Reckitt Benckiser have reacted surprisingly well to news of today’s big settlement with US authorities.”
He added: “Given how aggressive US regulators can be, there must be some relief that a line has been drawn under the issue and incoming Reckitt chief executive, Pepsi man Laxman Narasimhan, can start with a clean slate.
“Because the fine will be met through existing borrowing facilities and cash flow, Narasimhan will inherit a company in slightly straitened circumstances, particularly as the balance sheet had already been stretched by the 2017 acquisition of Mead Johnson for an eye-watering US$17bn.
“And this could be a significant issue as several observers have identified a need for Reckitt to increase the investment behind its brands.”
Mould concluded: “The danger is that Narasimhan will be operating with one hand tied behind his back in his efforts to revive a business which has lost its way of late under current CEO Rakesh Kapoor.”
--Adds further analyst comment, updates share price --