Reckitt Benckiser, the consumer goods group behind brands such as Cillit Bang, Lemsip and Nurofen, today agreed a £2.5bn buyout of SSL, the business behind Durex condoms and Scholl shoes, in the latest in a spate of takeover deals.
Merger and acquisitions activity is currently one of the few bright spots in the City: other types of trading are stagnating. This week alone engineering firm Tomkins and International Power have both been the subject of bids.
Bart Becht, the Reckitt boss who was the highest-paid FTSE 100 chief executive last year, said today's deal added two "power brands" to the Anglo-Dutch company's portfolio, both of which had potential for further growth.
The agreement also increases Reckitt's exposure to the growing health and personal care business as well as inceasing its presence in China. SSL operates the world's largest condom factory in Qingdao.
Durex has been manufactured since the early 1930s and has become a globally recognised brand. The name was a shortening and amalgam of the words durability, reliability and excellence.
SSL has been a stock market darling in recent years, its products proving recession-proof. "People are not going to stop having sex," Gary Watts, its chief executive, told the Guardian last year. Its share price has risen more than fourfold in the past five years, from 259p.
Becht said the deal would "provide a step-change" to Reckitt's health and personal care business, which has driven the group's growth, increasing revenues of the division by more than a third.
Reckitt's other "power brands", defined as those that have potential for global reach, include Finish dishwasher tablets, Air Wick air fresheners, French's mustard, Harpic toilet cleaner and Clearasil spot treatments. Becht said the company now had 19 in total.
Reckitt is paying £10.71 per SSL share, representing a 33% premium to the price at the close of trading on Tuesday.
SSL's chairman, Gerald Corbett, said the business had had a great run. "Few shares in investors' portfolios have done so well," he said. He said the two sides had been in talks for the past month and that the board would not be soliciting rival bids. But the price closed at £11.77, suggesting investors believed a rival offer could yet emerge.
Reckitt said it could save £100m a year by combining the companies, in part by merging distribution: both sell over-the-counter products to pharmacies and supermarkets. Reckitt said its greater strength in distribution would also help to build the brands globally.
Profits at SSL increased by 51% last year to £115m, on revenues up 25% to £803m. The improved performance was down to acquisitions of two condom-makers in Russia and Ukraine as well as the expansion of the Durex brand into a range of sex toys and lubricants.
The Scholl brand has its origin in a small shoe store in Chicago. The owner, William Mathias Scholl, qualified as a doctor in 1904, and then launched his first product, an arch support. SSL owns the brand everywhere but the Americas, where it is held by Merck, the US pharmaceuticals group.
SSL was the result of two back-to-back mergers in the late 1990s; Seton Healthcare merged with Scholl in 1998 and then with London International Group, the owner of Durex, less than a year later. It employs 10,000 people worldwide, including a head office in London and manufacturing in Manchester, Peterlee in County Durham and Redruth in Cornwall. Reckitt warned that some commercial and administrative jobs were under threat.
Analysts said it was possible that another bidder could emerge, but Chas Manso de Zuniga at Evolution Securities said it was unlikely. "You may get some of the big guys in pharma having a look at whether it's worth offering a bit more. But the current offer is a good one." He said the acquisition would take Reckitt's profit split between household and health and personal care to 50/50 by 2012.
GlaxoSmithKline's chief executive, Andrew Witty, later played down talk of any interest. "I think the way our businesses are sold and developed in the marketplace is quite different to the way an SSL business is sold and developed in the marketplace," he told reporters at the company's half-year results.
Reckitt is due to report half-year results on Monday. Last year, it made £1.9bn in profit.
Panmure Gordon analyst Damian McNeela described the deal as "an excellent strategic fit."