19 November, 2009
UPDATE 4-Market wary of whether Reckitt, Colgate should merge
* Reckitt and Colgate won't comment on deal talk
* No strategic benefit for Colgate-analyst
* Structuring a deal would be difficult-analysts
* Reckitt shares up as much as 3.7 pct, Colgate slips (Recasts, adds Reckitt CFO, analyst comments, updates shares)
By David Jones and Jessica Wohl
LONDON/CHICAGO, Nov 19 (Reuters) - Reckitt Benckiser (RB.L) and Colgate-Palmolive (CL.N) declined to address speculation about a possible link-up, and analysts were skeptical of a deal between the two consumer goods titans.
Shares in Britain's Reckitt rose as much as 3.7 percent following a report in the Daily Telegraph newspaper that it was close to a multibillion-pound deal, with Colgate a likely target. Colgate shares jumped as much as 5.5 percent after the report late on Wednesday, but shed 2.2 percent on Thursday.
"No comment. We don't comment on market rumors. Period," Colgate Chief Executive Ian Cook told Reuters when asked about a Reckitt link-up during a visit to China. [ID:nHKG266231] The New York Stock Exchange had inquired into Colgate's share move on Wednesday. [ID:nN18485297]
Reckitt Chief Financial Officer Colin Day also would not comment on the report when approached by Reuters on the sidelines of a New York investor conference, citing company policy not to address market rumors.
He said at a conference session that Reckitt's broader interest in acquisition activity included health and personal care, but noted that the failure rate for industry combinations was high.
Analysts questioned the likelihood of a deal between Reckitt, which is valued at about $37.2 billion, and Colgate, with a market capitalization at around $41.2 billion, in a market not suited to digesting such a large transaction.
"We are sceptical on the imminence of a deal between the two," said analyst Charlie Mills at Credit Suisse.
Mills said he was not aware of any immediate catalyst for a deal to take place, but if a deal were to happen it would most likely be a merger of equals.
"Strategically a merger doesn't make sense for Colgate," said Bill Pecoriello, CEO of ConsumerEdge Research.
GLOBAL GROWTH
A potential deal would link Reckitt's products like Finish dishwasher detergent, Lysol disinfectant and Cillit Bang cleaner with Colgate-Palmolive's namesake toothpaste, toothbrushes and dishwashing soap.
It would give Reckitt a greater geographic reach in quick-growing emerging markets such as China, where Colgate already has a strong presence. Reckitt's presence in developing markets would skyrocket from about 18 percent of sales in 2008 to about 36 percent, BMO Capital Markets' Connie Maneaty said.
Other analysts also doubted whether there would be a link-up between the two highly rated stocks, as it would be difficult to structure a deal to give value to all shareholders and keep both management teams happy.
"While we believe the Colgate franchise ... would be attractive to Reckitt, we're not as convinced that Reckitt's portfolio of solid shares in many smaller categories would be equally attractive to Colgate," said Maneaty. She said Colgate would be more fairly valued at $103, about 20 percent above its current price.
Reckitt has been a star performer on the UK stock market since underperforming British group Reckitt & Colman took over German Benckiser in 1999 and put Benckiser's Dutch Chief Executive Bart Becht in charge of the larger group.
Becht charted the group's rapid growth, launching innovative products backed by increased marketing spending and reviving older brands such as Vanish stain remover, Woolite fabric cleaner and Airwick air fresheners.
He boosted growth by buying Boots' non-prescription drug business with products like Nurofen painkillers in 2005 and then U.S. cough and congestion medicine group Adams in 2008.
Strong sales growth and cost cutting saw Reckitt meet Becht's target to match the margins of U.S. peers Colgate and Procter & Gamble (PG.N) and helped it attain their once much higher share ratings.
CONFIDENCE IN COLGATE
Over at Colgate, British-born Cook joined its UK operations in 1976. After serving in senior marketing roles around the world, he became chief operating officer in 2004, was named CEO in 2007, and in January 2009 also became chairman.
Cook has been more reserved in his public appearances for the New York-based company than his predecessor, longtime Chairman and CEO Reuben Mark, who was known for humorous comments on conference calls and in presentations.
Shares of Colgate have climbed more than 25 percent this year, with much of those gains coming in the past few months as investors grew more confident the company's household products were not being hard hit by cheaper store brands.
The idea of Reckitt and Colgate linking up has surfaced before, but not in recent months.
The Telegraph report said takeover activity surrounding Kraft Food Inc's (KFT.N) $16.7 billion hostile bid for Cadbury (CBRY.L) had led to bid speculation elsewhere, and cited talk that Reckitt was close to announcing a deal.
The report related this speculation to a Nomura analyst note earlier this year which said Colgate could merge with a British company, but the Nomura analysts thought Unilever (ULVR.L) would be the U.S. company's more obvious partner. (Additional reporting by James Pomfret and Phil Wahba; Editing by Michele Gershberg and Gunna Dickson)
Source: http://www.reuters.com
UPDATE 4-Market wary of whether Reckitt, Colgate should merge Added: (19.11.2009)
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