Bottom Line: Reckitt’s heroin spin-out faces hurdles

 
Michael Bow
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What do throat sweets and heroin substitutes have in common? Not a lot, if you happen to be Reckitt Benckiser boss Rakesh Kapoor.

His plan to de-merge Reckitt’s opiate business from household brands such as Strepsils and Dettol seem eminently sensible on the surface – but could prove more difficult in practice. Analysts suggest a float of Reckitt Benckiser Pharmaceutical (RBP) would value it at around £2.9bn. If Reckitt kept a small stake, it could enjoy both the gains from selling the business and any ongoing success. Pharma is undergoing a vast redrawing of boundaries at present (around $260bn worth of healthcare deals have closed since January, a staggering 220 per cent rise on 2013 according to Mergermarket) so now would be as opportune time as any to carve out the business.

But there are high hurdles here. The business is not as robust as it once was, because RBP’s main source of revenue is heroin substitute Suboxone, which lost its patent protection in 2009. Adjusted operating profits at the group fell from £536m in 2012 to £428m last year. The pursuit of a capital markets solution also comes after the group failed to find a trade buyer for the unit. This could embody deeper concerns about the future earnings growth potential of the group, which stock market investors will no doubt share.

Kapoor’s ambition to split the pharma business makes sense – but it will be easier said than done.