Reckitt Benckiser has entered into an agreement to sell its Essential Home business to US private equity firm Advent International for an enterprise value of up to $4.8bn.
The deal will see the consumer goods giant retain a 30% stake in the division, with plans to return approximately $2.2bn of the sale proceeds to shareholders via a special dividend.
A Reckitt spokesperson said the decision to retain a stake provided a potential long-term value opportunity, and the deal structure maximised returns for shareholders.
The company’s share price increased as much as 2.3% in early trading before paring most of the gains.
The Essential Home business operates across the air care, surface, pest and laundry categories and generated an operating profit of £490m last year on revenues of around £2bn – about 14% of Reckitt’s total revenue. Its portfolio of brands includes Air Wick, Calgon, Woolite, Cillit Bang, Resolve, Sole and Easy-Off, as well as around 75 other brands across over 70 markets.
The company announced plans to offload the unit last year as part of a wide-ranging restructuring to focus on its more profitable health and hygiene ‘Powerbrands’. Volatile market conditions are said to have impacted the sale process and the level of bids.
In total, the deal includes up to $1.3bn of contingent and deferred payments. Up to $400m of the consideration is contingent on the division’s future operating performance.
Kris Licht, Reckitt’s Chief Executive, said that the sale “represents a significant step forward in unlocking the substantial value in our business” and it will enable the company to “focus on a core portfolio of high-growth, high-margin Powerbrands”.
Ranjan Sen, Managing Partner at Advent, added: “The carve-out represents a unique opportunity to create a focused, scaled platform of globally recognised home care brands that operate in attractive categories with structural growth tailwinds. We are confident we can build on the portfolio’s strong foundations to drive operational excellence and unlock the brands’ full potential.”
The deal is expected to be completed by the end of December.
“This should be a boost to management’s credibility, quite a lot of which was resting on the successful execution of this deal,” RBC analyst James Edwardes Jones said in a note published by Reuters, though he did describe the proceeds as underwhelming.
JPMorgan analysts also noted that the deal’s financials were weaker than expected, adding that Reckitt’s remaining stake in the business leaves it exposed to Essential Home’s future performance.
