Reckitt boss ‘open-minded’ to reaching settlement in baby milk cases

The chief executive of Reckitt Benckiser has suggested the FTSE 100 consumer goods group is open to reaching a settlement over US safety lawsuits against its premature infant formula to help smooth a possible sale of its nutrition business.
Shares in Reckitt slumped in March over fears about potentially large liabilities from hundreds of cases after an Illinois state court jury awarded $60 million in damages to a mother who alleged her premature baby died after consuming the specialised formula, Enfamil.
Concerns deepened in July when a jury in the same court in a similar case awarded $495 million in damages against Abbott Laboratories, Reckitt’s New York-listed competitor and maker of another specialised premature formula, Similac.
A third case against both companies is under way in St Louis, Missouri, with a verdict expected possibly as soon as next week.
The companies reject any “causal link” between its products and necrotising enterocolitis (NEC), a serious bowel disease, and their position was boosted this month by a joint statement from the US health authorities.
At Reckitt’s half-year results in July it announced plans for a strategic review of its Mead Johnson infant nutrition business and a possible sale of a portfolio of homecare brands, including Air Wick and Cillit Bang, as part of a wider shake-up of the group.
Reckitt, based in Slough, Berkshire, is one of the world’s biggest consumer healthcare groups, formed through the merger of Reckitt & Colman and Benckiser of the Netherlands in 1999.
City analysts have questioned how quickly and effectively Reckitt can offload the nutrition business, given the significant legal threat hanging over the unit.
Kris Licht, the chief executive, said on Wednesday that the litigation remained at an early and complex stage, with federal court cases not scheduled to start until next year, which meant that “in a lot of ways it is very early to talk about settlement”.
He said: “In order to actually talk about settlement, you have to have a number of facts that are clear, such as cases, such as the types of injuries that are being alleged … And we don’t have all of those facts yet.”
However, he added: “That being said … we will remain focused on doing what’s best for our shareholders and if at some point that means there’s a practical way to do something reasonable to settle some of these claims, then we will remain open-minded to that.”
Mead Johnson was acquired for $18 billion in 2017, a purchase bigger than all Reckitt’s previous deals combined.
Licht said there would be “good buyers” for the nutrition business because it was “fundamentally a really good business, and in normal times, a fairly stable business as well”, but he acknowledged “most people would find an uncertainty such as a large litigation that is not resolved to be a concern”.
Reckitt, therefore, is not putting a timeline on the process. “We’re going to take our time,” he said.
Private equity firms have been approached over the purchase of the homecare brands, valued at about £6 billion, according to reports, and Licht said on Wednesday that Reckitt remained on course to exit that business by the end of 2025.
Following the restructuring, Reckitt plans to focus on its consumer health and hygiene “market-leading power brands”, such as Strepsils, Nurofen, Dettol and Durex, and is accelerating its cost-cutting drive to reduce its fixed-cost base to about 19 per cent from about 22 per cent, at a one-off cost of about £1 billion.
Licht said Reckitt was “continuing to deliver while we undergo this change”.
Group net revenue fell 0.5 per cent to £3.45 billion on a like-for-like basis in the three months to the end of September, better than a 1.7 per cent drop forecast by City analysts.
Sales growth of 2.1 per cent in its hygiene business and 3.2 per cent in its health business was offset by a 17.4 per cent drop in its nutrition business, which was hit by tornado damage to a warehouse in Mount Vernon, Indiana, in July.
This led Reckitt at the time of its half-year results to cut its group net revenue growth outlook for the year to between 1 per cent and 3 per cent, from a previous range of 2 per cent to 4 per cent.
In its latest outlook on Wednesday, the company said it continued to target growth within that revised range, but said the financial impact from the tornado was less than feared and so it now expected a “high single-digit decline” rather than a “low double-digit decline”.
Shares in Reckitt closed up 190p, or 4 per cent at £49.53 on the London Stock Exchange, still down 8.5 per cent this year.