Consumer goods giant Reckitt Benckiser has confirmed a strategic review of its food business, which could lead to the sale of brands such as French’s mustard.
It comes less than a month after the company agreed to buy infant formula producer Mead Johnson for $17.9 billion including debt.
Mead Johnson had been targeted specifically for its performance in Asia. According to Reckitt Benckiser chief executive officer Rakesh Kapoor, the deal will significantly strengthen RB’s position in developing markets.
But the business could now be forced into a sale of its other food assets in order to appease concern among investors about Reckitt Benckiser’s level of debt.
In addition to long-term debt of £804 million, the company’s latest annual report shows that it was committed to borrowing facilities totalling £3.5 billion.
Its food business made £118 million in operating profit in 2016.
The Telegraph has suggested that RB might seek between £2 billion and £2.3 billion for the business.
Analysis: not a core business
Food has always been a ‘non-core’ area for Reckitt Benckiser, with its food brands making up less than 5% of its group-wide revenues. Indeed, it’s better known for personal care products like Veet, Scholl and Durex, as well as cleaning brands such as Dettol and Cillit Bang.
It’s not difficult to see why food would be a distraction for RB: it sticks out like a sore thumb from a list of the company’s brands. Rivals like Procter and Gamble have concentrated their efforts on the core personal care and hygiene markets, while Unilever, which has some personal care products like Axe/Lynx, does a much better job in the food space.
So it makes sense now, in the face of more than £4 billion’s worth of debt and having committed almost $18 billion to the Mead Johnson deal, that it would offload brands like French’s and ease the pressure from investors.
© FoodBev Media Ltd 2020
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