More on Boots, Reckitt Benckiser
Sale of Boots Healthcare to Reckitt Benckiser
Boots is selling its manufacturing operations, Boots Healthcare International, to Reckitt Benckiser for £1.9bn. Of this £1.4bn will be will be returned to shareholders through a special dividend of approximately 200p. As previously announced £400m will be retained . The remaining £100m+ has been absorbed by taxes and other costs.
The sale will take around a quarter off Boots’ EPS. This leaves investors paying approximately 11× prospective EPS for a more focused retailer with a stronger balance sheet. However with the merger with Alliance Unichem now almost certain, what Boots represents is a half share in the merged group. The merged group is also likely to pay a significantly lower dividend than Boots, as we have previously discussed.
Reckitt Benckiser expects a very high level of cost synergies - £75m a year. The purchase is expected to be immediately earnings enhancing. However Reckitt Benckiser will remain expensive with a prospective PE of around 18× (at 1748p). The brands that Reckitt Benckiser is acquiring (which include Clearasil, Nurofen and Strepsils) have scope for brand extension, something at which Reckitt Benckiser excels.
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