Unilever, the Persil to Flora group, has been suggested as a likely candidate. The Anglo-Dutch company would not comment, but a spokesman pointed out that in February the firm paid back pounds 5bn to shareholders because it was not considering any acquisitions.
Yesterday's announcement of the planned merger between Reckitt and Benckiser follows a tough year for the UK company. The firm issued a profits warning last autumn following turmoil in emerging markets and destocking by customers. Interim profits halved to pounds 78.3m in the six months to 3 July.
If the deal goes ahead, it will create the world's largest household cleaning company, excluding laundry products. The combined portfolio will contain household names such as Reckitt's Dettol, Harpic and Lemsip and Benckiser's Vanish, Finish and Calgon. The merged company will be called Reckitt Benckiser. If Reckitt accepted a counter takeover proposal, it would stand to pay Benckiser a pounds 30m break-up fee.
The proposed merger will inevitably bring job losses. If employees were reduced at the same rate as costs, redundancies could reach 1,500. Bart Becht, Benckiser's chief executive officer and the proposed CEO of the merged firm, refused to comment in detail but said that the majority of the merger's pounds 120m restructuring cost will be used for redundancy pay- outs.
At a press conference yesterday, Mr Becht outlined the proposed company's strategic drive. He said this would involve focusing on core products in the fabric care, surface care, health and personal care, dishwashing and home care categories to achieve top-line growth. This will mean rationalising what Mr Brecht called "non-strategic, tail-end products" whose profitability has been declining by 15 per cent a year across the two companies.
The Reckitt-Benckiser merger should generate pounds 75m in annual pre-tax cost savings by the end of 2001 after increasing marketing expenditure by a proposed 25 per cent. The savings will result from a reduction in operating fixed costs, especially in markets such as Western Europe and the US, where both Benckiser and Reckitt & Colman have a presence. Reckitt Benckiser will be headquartered in the UK and listed on the London Stock Exchange. The firms hope to complete the deal by the end of September.
The merger transaction will be effected through an exchange of five new Reckitt shares for every Benckiser share. Under the proposed structure, Reckitt shareholders will hold a 59.1 per cent effective interest in the new company.