Jim Armitage: Reckitt Benckiser's HyHo troubles will not be cured by Pfizer’s meds

JIM ARMITAGE
Reckitt Benckiser shocked the City last night by withdrawing from bidding for Pfizer: REUTERS

Hy-ho, hy-ho, it’s off to work he goes. Reckitt Benckiser’s lavishly paid Rakesh Kapoor has reached for the beta blockers and calmed his deal-fuelled adrenaline rush.

Faced with troubles at his hygiene and homecare arm (which he likes to call HyHo for short), and still integrating his ill-advised Mead Johnson Nutrition takeover, he has walked away from Pfizer’s over-the-counter medicines.

Good.

Buying a chunk of Pfizer’s consumer business actually made far more sense than the Mead deal. Advil painkillers would have been a great fit for Reckitt’s Nurofen.

But with the Mead milk monster to bed in and a host of other difficulties to fix in his unruly business, he is right to walk away.

His shareholders are delighted.

That leaves GSK in the driving seat of the Pfizer auction.

Ironically, the transaction makes less sense for Glaxo boss Emma Walmsley than it did to Kapoor.

She has declared loud and clear that core pharmaceuticals will be her capital allocation focus, rather than over-the-counter stuff.

But she can make the argument that deals such as this don’t come along every day. Advil is huge in the US and would complement GSK’s Panadol, which isn’t. Pfizer’s vitamins and supplements led by the Centrum megabrand would be a new growth market for GSK and not a million miles away from its brands such as Tums and Zovirax on supermarket shelves.

Meanwhile, she could sell investors the usual stuff about the synergies and big, new cashflows.

The deal would be funded by debt rather than equity, so shareholders would wear it. But only at the right price. Now she’s no longer fighting in an auction, Walmsley has to batter Pfizer down.

This is a Centrum-like nice-to-have supplement, not a need-to-have lifesaver. With some shareholders already worried about the GSK dividend, she must not overpay.

Delay hangover for Conviviality

Every day that passes without booze distributor Conviviality finding its £125 million of rescue cash, the greater the chances of its collapse.

Credit insurers withdrew cover for its big suppliers last week. So now, its biggest sources of wine, beer and spirits are demanding cash on order rather than, say, 90 days to pay. That triggers a dramatic cashflow shortage and is the key reason it needs the emergency cash.

Meanwhile, you can bet that rivals LWC, Bestway and Booker are offering Conviviality’s customers to step in. It only takes a few — Wetherspoons, say — to say yes and Conviviality is in a nightmare of falling sales combined with continued high fixed costs of running its vans and depots.

Fidelity — Conviviality’s biggest shareholder at 11% — may take up more than 11% of the £125 million fundraising, but that still leaves more than £100 million to find.

If not, it’s last orders soon.

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