Morningstar | RB's Indivior Settlement Could Have Been Worse; Company Will Now Hope to Move on Under Incoming CEO
We are reiterating our GBX 7,300 fair value estimate of RB following the company's announcement that it has settled with the US Department of Justice and the Federal Trade Commission over an indictment in April related to the marketing of Suboxonne by its former pharmaceutical division, Indivior. RB will pay $1.4 billion (GBP 800 million) in fines to settle the dispute, some $1 billion more than the liability it had recorded on its books, but mercifully less than the $3 billion in fines that were sought in the indictment. RB stated that the settlement amount would be funded through existing borrowing facilities and cash flow. This lowers our valuation by around 1.5%, but this is offset by the positive impact of the time value of money since our last update.Although this is a material charge, it could have been worse for RB. The market, which appeared to price in a worst-case scenario when news of the indictment broke, appears to have breathed a sigh of relief, driving the stock modestly higher in Thursday trading. It also removes an overhang and allows the company to focus on the repositioning of the business into strong price/mix categories as well as the CE transition. Former PepsiCo executive Laxman Narasimhan will take over from Rakesh Kapoor as CEO from Sept. 1, 2019. This, along with the Indivior settlement should give RB a clean slate, following a series of operational mishaps. After a pullback in the stock over the last 12 months, we see some upside from here, and believe that stronger execution going forward may deliver the upside.
Reckitt Benckiser Group develops, acquires, produces, distributes and promotes consumer products in the health, hygiene and home categories. Co.'s health category covers treatment products such as pain and flu, and also wellness products in sexual wellbeing, footcare, vitamins and supplements. Co.'s hygiene category consists of personal and home hygiene products. Co.'s geographical segments comprise Europe (ENA) and Africa, Middle East (DvM). ENA comprises Europe, Russia/CIS, Israel, North America, Australia and New Zealand. DvM principally comprises North Africa, Middle East (excluding Israel) and Turkey, Africa, South Asia, North Asia, Latin America, Japan, South Korea and ASEAN.
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