Reckitt pays £2.5bn for SSL to strengthen healthcare presence

The group, which traces its roots back to Hull, is paying 1,171p per share for the maker of Durex condoms and Scholl sandals, a deal recommended by SSL's board.

The price represents a 33 per cent premium to SSL's share price and the deal was hailed an "excellent strategic fit" by one analyst.

Reckitt, the maker of Nurofen painkillers, Cillit Bang cleaner and Lemsip cold remedies, has made its big names or 'Powerbrands' core to its strategy.

"The acquisition will add two new Powerbrands, with good further growth potential, to Reckitt Benckiser's current arsenal, making 19 Powerbrands in total," said Reckitt's Bart Becht, the FTSE 100's best paid chief executive.

"Durex, in the sexual wellbeing category, is the global number one condom brand and Scholl is the market leader in the footware category in many of the markets where it is present."

Reckitt employs about 1,300 in Hull at its manufacturing and research and development sites, part of a workforce of almost 25,000 globally.

The groups warned the integration of the two companies is expected to lead to job cuts in commercial and administration functions. SSL employs around 10,000 people worldwide.

SSL, which also has pain relief brands such as Cuprofen and Paramol, is headquartered in London and has sites in Manchester, Peterlee in County Durham, Redruth in Cornwall, and Middleton in Lancashire. SSL chairman Gerald Corbett said the offer was "some four times the level of SSL's share price five years ago".

"I believe few shares in investors' portfolios have done as well," he said. "Reckitt Benckiser is a well-regarded company and I am sure our brands and people are in good hands."

SSL has operations in more than 30 countries, with manufacturing in India, Thailand and China as well as the UK.

The group saw pre-tax profits leap 51 per cent to 115.3m in the year to the end of March as sales soared to 802.5m, thanks to growth in markets such as China. Reckitt is keen to expand in China and Japan, and said the deal will substantially increase its presence there.

It said the acquisition will increase its health and personal care revenues by more than 36 per cent to about 2.8bn – one third of total group revenues.

"It's a great price and I think it's an excellent strategic fit for Reckitt Benckiser," said Panmure Gordon analyst Damian McNeela.

He said another bidder was unlikely to step in as Reckitt was in an unrivalled position to extract value from SSL by adding its products to its Powerbrands.

"Even before any revenue synergies, the acquisition looks wholly acceptable on financial grounds alone," said Charles Stanley analyst Tom Gidley-Kitchin. "There is minimal commonality between Reckitt's and SSL's products... so we would not anticipate any difficulties at all in relation to competition and market structures."

Shore Capital analyst Darren Shirley said: "We believe the proposed acquisition represents good business for Reckitt's, increasing the exposure to consumer healthcare whilst offsetting some of the ongoing challenges from the sluggish European consumer and the uncertainty surrounding (heroin substitute) Suboxone."

Reckitt is funding the bid through a new 1.25bn facility from HSBC. The group reports half-year results on Monday.

THE ASCENT OF AN INDUSTRIAL GIANT

Reckitt Benckiser traces its roots back to the early 19th century in Hull and Germany.

1823 – industrial chemicals business Benckiser founded by Johann A Benckiser in Germany.

1840 – Issac Reckitt rents, then buys, a starch mill in Hull and the company becomes renowned for starch, washing blue and black lead for polishing.

1888 – Reckitt & Sons is launched on the London Stock Exchange.

1938 – Reckitt & Sons merge with J&J Colman to become Reckitt & Colman.

1999 – Reckitt & Colman and Benckiser merge to become Reckitt Benckiser, the global leader in household cleaning.

2005 – Cillit Bang launches in 68 countries in just one year.

2006 – Reckitt Benckiser buys Boots Healthcare International for 1.9m.