Reckitt to buy Durex maker SSL for £2.54bn

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The Independent Online

Reckitt Benckiser surprised the markets with a £2.54bn agreed deal to buy the Durex condoms to Scholl shoes group SSL International yesterday, as the consumer goods giant looks to grow its health and personal care revenues in the emerging markets of Russia and Asia.

SSL shares jumped 33 per cent to 1,177p, above the cash offer price, amid speculation a rival bidder could emerge. The household goods specialist Reckitt cited the attraction of adding Durex and Scholl to its other 17 so-called "power brands", including Vanish stain remover, Finish dishwasher powder, Harpic toilet cleaner and disinfectant Dettol.

SSL has also expanded aggressively in countries such as Russia, and has trebled its profits in the last five years. It has also extended the breadth of its Durex and Scholl brands into areas including sex toys and insoles for high heels.

The deal is a further sign that an appetite for mergers and acquisitions is returning after a hiatus during the credit crisis. This week alone two big deals have been unveiled.

Tomkins, the London-based manufacturer of car parts, received a £2.9bn takeover from a Canadian consortium. And Reckitt's rival Unilever has agreed to sell its Italian frozen foods business to Birds Eye Iglo, which is owned by the private equity firm Permira, for €805m (£685m).

Bart Brecht, the chief executive of Reckitt, said the acquisition of SSL would provide a "step-change" to its global health and personal care business, which has been a key driver of the company's net revenue growth and profits increase. He added: "We expect cost synergies in the region of £100m per annum from the combined group by the end of 2012, resulting in an improved margin profile for the acquired business."

Given his comments on cost savings, it is thought that there will be a number of job losses at the acquired business. But market sources said it was too early to provide any estimate for staff cutbacks, which are likely to be made with back-office and certain commercial roles. They also said that Reckitt is looking to buy SSL to grow the business.

Reckitt is offering 1,163p a share for SSL and its shareholders will also remain entitled to receive a proposed final dividend of 8p a share, making 1,171p a share in total.

Graham Jones, an analyst at Panmure Gordon, described the acquisition as an "excellent strategic fit" for Reckitt and changed his recommendation on its shares from hold to buy.

Reckitt said that health and personal care accounts for about 27 per cent of its total £7.8bn revenues, but SSL would grow this to 36 per cent.

The deal will need to be approved by anti-trust regulators in the European Union, Russia and the Ukraine, but they are expected to clear Reckitt to complete the acquisition in the final three months of this year.

Gerald Corbett, the chairman of SSL International, said: "In the last five years, product development, cost control, improvement to systems and supply chains and well-judged acquisitions have trebled SSL's profits." He added: "This offer is four times the level of SSL's share price five years ago. Reckitt Benckiser is a well-regarded company and I am sure our brands and people will be in good hands."

Yesterday, SSL said its performance for the period from 29 April had been "entirely satisfactory", with both Durex and Scholl continuing to perform well. For the year to 31 March, SSL delivered operating profits of £126m, on total sales of £802.5m.

Reckitt, which is based in the UK and has 24,900 staff worldwide, has operations in 60 countries. The consumer goods giant posted an operating profit of £1.9bn for the year to 31 December. The pharmaceutical giant GlaxoSmithKline effectively ruled out a counter bid for SSL yesterday.

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