Reckitt Bids Up Bayer With $1.4 Bil. Schiff Nutrition Offer
This article was originally published in The Tan Sheet
Executive Summary
Reckitt Benckiser’s $1.4 billion offer to acquire Schiff Nutrition would be 23.5% higher than Bayer’s and more than an 80% premium over Schiff’s share price prior to the Bayer announcement. Gaining Schiff would expand Reckitt’s consumer health business beyond OTC drugs and represent its first supplement foray.
Reckitt Benckiser Group PLC moves to expand its presence in the consumer health care market with a $1.4 billion cash offer to purchase dietary supplement firm Schiff Nutrition International Inc., which already has agreed to be acquired by Bayer HealthCare LLC.
Slough, U.K.-based Reckitt Nov. 16 filed a tender offer statement with the U.S. Securities and Exchange Commission to acquire Schiff for $42 a share – 23.5% higher than Bayer’s $34 offer and more than an 80% premium over Schiff’s share price prior to the Oct. 30 Bayer announcement.
Though Bayer’s deal for Salt Lake City-based Schiff is already inked and expected to close by year end, Reckitt is confident that its offer, which expires 9 a.m. eastern on Dec. 14, will be hard to resist.
Rakesh Kapoor
Photo courtesy of Reckitt Benckiser
“We know that Bayer does have the rights to match our offer. However, we believe we’ve made a very competitive offer,” said Reckitt CEO Rakesh Kapoor during a same-day call with analysts.
Reckitt reorganized in February to focus on three core businesses – health, hygiene and home care. Its health division comprises OTC brands such as Mucinex expectorants, Cepacol and Strepsils sore throat products, and Clearasil acne treatment. The company’s Rx pharmaceuticals business is excluded from the health division (Also see "Reckitt Reorganizes To Develop Health Care, Emerging Markets" - Pink Sheet, 13 Feb, 2012.).
Kapoor noted Schiff would bring Reckitt “immediate scale” in the U.S. vitamin/mineral/supplement space.
In comparison, the recent acquisition by Procter & Gamble Co. of whole food supplement maker New Chapter Inc., brought the firm limited distribution and brand awareness, relative to Schiff’s products (Also see "New Chapter Taps Into P&G Product Development Capacity" - Pink Sheet, 1 Oct, 2012.).
The CEO said Reckitt proposes to bring “consumer marketing, innovation, superior branding and provisioning, and of course our tremendous go-to-market capabilities” to Schiff supplements such as MegaRed krill oil, the top-selling omega-3 stock-keeping unit in the U.S., Airborne for immune health and Move Free for joint health.
While the supplement industry increasingly has emphasized novel ingredients based on strong research and development, Kapoor made clear that new ingredients and claims are of less interest to a company such as Reckitt.
“Reckitt Benckiser is not interested in ingredient stories. We’re interested in brand stories,” he said.
Offer Is Rich, But No Sure Thing
Market analysts expressed little doubt that Reckitt could finance the Schiff deal and integrate the company – given its experience in 2007 with acquiring Mucinex maker Adams Respiratory Therapeutics Inc.– but the question remains whether the deal will happen.
Erin Lash of Morningstar noted Reckitt’s offer – at 3.6 times expected sales and 16.5 times earnings before interest, taxes, depreciation and amortization – seems generous, but “we aren’t convinced that a deal between Reckitt and Schiff will ever be inked” given the apparent finality of Schiff’s agreement with Bayer.
The addition of Schiff, which Reckitt expects to tally $385 million in sales and $84.6 million in EBITDA for the fiscal year ending May 31, 2013, would add about 2 percentage points to Reckitt’s earnings per share forecasts, Deutsche Bank analysts said.
UBS analysts expect Schiff would expand Reckitt’s health business, which reported sales of $890.3 million in the most recent quarter, by about 12%. Though Schiff’s profit margins are significantly lower than Reckitt’s, UBS expects the U.K. firm would realize cost efficiencies given its “very strong history of delivering synergies.”
Bayer has not commented on Reckitt’s move. But regardless of how the fight over Schiff plays out, both suitors likely want to close the deal in 2012 – as Credit Suisse points out, the tax rate on capital gains is slated to increase from 15% to 20% after the new year.