And now for another burst of fantasy merger and acquisition talk, this time surrounding Reckitt Benckiser.
Analysts at JP Morgan have issued a hefty note on the Cillit Bang to Disprin business, with an overweight rating and a £33 price target. They say:
Even as the company continues to deliver best-in-class performance, we see room for positive earnings revisions from better top line and operating margins for the core business and potentially milder profit erosion in US pharma. Yet, the market does not seem to have taken notice as the stock trades just in line with peers.
More intriguingly, the bank reckons Reckitt has a warchest of some £4bn for acquisitions, and believes it could act to consolidate the over-the-counter pharmaceuticals market. Crunching the numbers and the strategic imperatives, the bank comes up with four possible targets. It said:
There have been consistent public indications from management that Reckitt's M&A strategy will primary centre on the health and personal care business with only potential geographical fill-ins in household. We also note that at the first half analyst presentation, management stressed the difficulties to grow the health and personal care Latin American business without the appropriate distribution platform and that Japan offered strong opportunities in OTC give the high GDP per capita. In addition, the company has stressed in the past its ambition to hold strong positions in key categories. As such, we would expect the company to be interested in assets in its three core OTC categories of analgesics, cold & flu and gastrointestinal.
So the four possibilities, as JP Morgan sees them, are:
Boehringer Ingelheim (private German company with OTC sales of around £1.1bn)
Schering Plough's OTC business (OTC sales of around £0.8bn, Schering has merged with Merck)
Nycomed (OTC sales of £0.35bn)
SSL International (total sales of c£0.6bn, market capitalisation of £1.3bn)
But here comes the caveat from the bank: "We note that none of the companies analysed here have publicly discussed M&A."
Reckitt is currently 62p higher at £31.04 while SSL has climbed 8p to 633p.
