* Shares in relief rally over dropped Pfizer bid
* Organic growth opportunities to take longer
* If Pfizer deal falls apart, Reckitt may get second crack
By Martinne Geller
LONDON, March 22 (Reuters) - Reckitt Benckiser's
decision to drop its pursuit of Pfizer's consumer health
assets leaves it with a tough job to restore growth to its
With a deal off the table, investors will turn their
attention to Reckitt's internal challenges, including the
integration of Mead Johnson, the ailing baby formula maker it
bought for $17 billion last year, and reigniting sales growth.
"The market has been used to Reckitt being the company that
consistently delivered ahead-of-market volume growth and last
year they didn't," said Reckitt shareholder Steve Clayton at
Hargreaves Lansdown. "They really need to pick the crown up and
get it back on their head."
Reckitt has forecast 2 to 3 percent like-for-like sales
growth for 2018, after no growth in 2017.
The British consumer goods company was in the running for
some of the consumer health brands, including painkiller Advil,
being sold by Pfizer.
Many investors saw the attractiveness of the assets, but
worried about Reckitt's ability to fund and manage a deal that
could have reached $20 billion so soon after buying Mead
Following news late on Wednesday that Reckitt had abandoned
the auction - after Pfizer rejected its bid for some of the
assets - its shares jumped 6 percent as investors breathed a
sigh of relief there would be no dilutive issue of equity or new
distraction for senior management.
Since October, when Pfizer announced it was exploring
options for its consumer health unit, Reckitt's shares had
fallen 21 percent, in part on concerns about a possible deal.
Even after Thursday's gain, the stock is only trading at 16
times forecast earnings, below its five-year average of 19.
"We caution on being too optimistic over the prospects of a
quick fundamental turnaround of the core businesses," said
Barclays analyst Alex Smith. "In particular, we still see too
many uncertainties around the cost and cultural change required
to restore growth and competitiveness."
The Pfizer business would have made Reckitt the global
leader in consumer health, a category supported by aging
populations and growing interest in health and wellness.
Becoming a leading player there has been the long-stated
strategy of the company's chief executive, Rakesh Kapoor.
Some analysts praised Kapoor's financial discipline in
walking away from Pfizer, as it did from a deal for Merck in
2014, but Bernstein's Andrew Wood was disappointed.
"When Mead Johnson is fully integrated and RB's core
business is back to health, we think that RB might regret having
missed this once-in-a-decade acquisition opportunity for global
consumer health leadership," he said.
With the consumer health market still very fragmented, there
will be opportunities to grow in future, but it will be slower.
"Ex-Pfizer, these would now either need to be gestated
organically, or acquired more painstakingly via sequential
bolt-on deals," Jefferies analyst Martin Deboo said.
Yet, if Pfizer decides to keep its business for now, Reckitt
could be in a better position in a few years' time.
"If the sale falls through altogether and they get another
couple of years to sort the balance sheet out, maybe it will be
an opportunity in the future," Hargreaves Lansdown's Clayton
(Reporting by Martinne Geller; Editing by Mark Potter)
© 2018 Thomson Reuters. All rights reserved. Reuters content is the intellectual property of Thomson Reuters or its third party content providers. Any copying, republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. "Reuters" and the Reuters Logo are trademarks of Thomson Reuters and its affiliated companies.