Given the firm's record of acquisitions, we are not surprised by the rumours that Reckitt Benckiser is close to announcing a sizable cross-border deal. However, we are surprised that the speculation involves Colgate-Palmolive, which would necessitate a merger, as the two firms are roughly equal in size. We are holding tight to our fair value estimates for both firms--3,011p for Reckitt shares and $79 for Colgate--until we learn additional information.
Considering Colgate's strategic emphasis on the high-margin oral-care category and its already robust international distribution platform, we are struggling to understand how the toothpaste leader would stand to benefit from such a combination. Structuring such a deal would be a challenge to say the least, and the typical cost savings that often result in acquisitions would be harder to come by in a merger scenario. Most important, it doesn't seem to fit with what we know of Colgate. The firm has passed on pricey acquisitions in the past that were strong strategic fits, and while Reckitt has some attractive products in its portfolio, we are sceptical that Colgate aims to build out its household-care portfolio with expansion into the fabric-care and surface-care categories, both of which are core for Reckitt. Finally, while we don't believe a link-up between Colgate and Reckitt is likely, a number of targets would fit nicely into the latter firm's health and personal-care business. SSL International is a British manufacturer of non-prescription products, and while acquiring the firm wouldn't constitute a cross-border transaction, we think its brands, including Durex and Dr. Scholl's, would be a strong fit for Reckitt.
