Reckitt Is Raising Capital

More speculation about Reckitt Benckiser’s intentions are surfacing after sources say the company has been talking to lenders in the last two months and is testing the markets to see how much capital it can raise, according to The Financial Times.

Reckitt would not comment on the rumors, but sources say any deal for Colgate is probably out of the question.

If the company chose the bond market over bank debt, the lender indicated it could raise about $3 to 4 billion in unsecured debt. The lender added that cash-rich Reckitt can spend between $6 and 7 billion on an acquisition “without breaking into a sweat.”

An article published this week in the UK daily, The Telegraph, cited “well-placed” sources as saying that Reckitt is getting ready to execute on a multi-billion international deal, naming Colgate as a potential target.

The bankers were highly skeptical of Reckitt’s current ability to acquire the US company despite potentially “massive synergies” and indisputable logic behind the combination. The first banker noted that any deal between Reckitt and Colgate would have to be a merger-of-equals, since Reckitt does not possess the firepower to launch a hostile bid for Colgate, the number-one US household products company. The second banker acknowledged that Reckitt would be too small to take over Colgate.

But a merger between Reckitt and Colgate has been rumored for several years, the bankers said, questioning whether today’s press report held any more water than reports in recent years.

“It’s a complete step-change for [Reckitt]. No question they’re ready to do something, maybe the Colgate rumor could be a red herring,” said the first banker.

Being a significant buy for Reckitt, a third industry banker said Colgate would require almost too much cash, too much funding, and an abundance of stock. “That doesn’t mean it can’t be done,” the same banker said, noting that Reckitt would likely rather continue its path of advancing its presence within the Over-the-Counter (OTC) healthcare market.

In 2008, the company acquired Adams Respiratory Therapeutics, allowing it to enter the US OTC market with Mucinex, and in 2006, it acquired Boots Healthcare International for over GBP 1.9 billion.

“Pretty much everyone on the street knows they want to spend some cash, another Boots-like deal: large, transformational likely in OTC healthcare,” the lender said

Commenting on the timing of a potential deal, the lender said it was not clear to him whether the company had already decided on a specific target. However, he believed Reckitt was “stretching before a big run.”