Reckitt Benckiser’s chief executive has said that the FTSE100 consumer goods group would be open to settling US safety lawsuits filed against its premature baby formula in order to smooth a potential sale of its nutrition division.
In March, shares in Reckitt fell on fears of large potential liabilities from hundreds cases. A state court jury in Illinois awarded $60 million to a mother whose premature baby died as a result of consuming Enfamil.
Concerns were heightened when, in July, a jury awarded $495,000,000 in damages to Abbott Laboratories in a similar lawsuit. Abbott Laboratories is Reckitt’s New York listed competitor and manufacturer of Similac, another specialist premature formula.
In St Louis, Missouri a third case is pending against both companies, and a decision could be expected as early as next week.
A joint statement by the US health authorities this month bolstered their position. The companies deny any “causal connection” between their products and necrotising Enterocolitis (NEC), which is a serious bowel disorder.
Reckitt announced in its half-year results for July that it would be undertaking a review of its Mead Johnson business, including the homecare brands such as Air Wick and Cillit Bang. This was part of an overall restructuring of the company.
Reckitt is a consumer healthcare group headquartered in Slough, Berkshire. It was formed in 1999 by the merger of Reckitt & Colman of the Netherlands and Benckiser from the Netherlands.
City analysts have questioned whether Reckitt will be able to sell the nutrition unit quickly, considering the legal threat that hangs over it.
Kris Licht, chief executive of the company, stated on Wednesday that litigation was still at an early stage and that it would be complex. Federal court cases are not expected to begin until next year. This means that “in many ways, it’s very early to discuss settlement”.
He said: “Inorder to talk about settlements, you need to have some clear facts, like cases, or the types of injuries being alleged… We don’t yet have all those facts.” He added that he would remain open to any reasonable settlement of some of the claims. Mead Johnson, a company owned by Reckitt Benckiser, was purchased for $18 billion dollars in 2017. This purchase is bigger than Reckitt’s previous deals.
Licht stated that there will be “good purchasers” for the business of nutrition because it is “fundamentally, a really great business and, in normal times, also a pretty stable business”. However, he admitted “most people find uncertainty, such as an unresolved large litigation, to be a worry”.
Reckitt does not, therefore, set a deadline for the process. He said, “We are going to take our own time.”
Reports claim that private equity firms are interested in buying the homecare brands valued at around £6 billion. Licht stated on Wednesday that Reckitt was on track to exit the business by 2025.
Reckitt will focus its restructuring on “market-leading brands” in consumer health and hygiene, such as Strepsils and Nurofen. It is also accelerating the cost-cutting effort to reduce its fixed cost base from 22 to 19 percent, at an initial cost of approximately £1 billion.
Reckitt “continues to deliver” while the company undergoes this change, said Licht.
On a comparable basis, the Group’s net revenue dropped 0.5 percent to £3,45 billion in the three-month period ending September. This was better than the 1.7 percent drop predicted by City analysts.
The sales growth of 2.1% in the hygiene and 3.2% in the health businesses was offset by an 17.4% drop in nutrition, which was affected by tornado damage in Mount Vernon, Indiana in July.
Reckitt, at the time it released its half-year financial results, cut its forecast for group net revenue growth in the coming year from 2 to 4 percent to 1 to 3 percent.
The company’s latest outlook, released on Wednesday, stated that it would continue to aim for growth within the revised range but the financial impact of the tornado had been less than expected. It now expects a decline in the “high single digits” instead of a decline in the “low double digits”.
The London Stock Exchange closed Reckitt shares up 190p or 4 percent at £49.53, but they are still down 8.5% this year.
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