(Bloomberg Opinion) -- Reckitt Benckiser Plc has taken the medicine.
The company has settled with U.S. authorities to resolve a long-running investigation into the sale and marketing of an opioid addiction treatment by former subsidiary Indivior Plc.
The payment is a big one: $1.4 billion. That far exceeds the $400 million provision it had set aside. But it draws a line under an issue that had threatened to derail a potential break-up of the maker of Cillit Bang cleaner and Durex condoms. Reckitt denied any wrongdoing, and said the settlement was in the best interests of the company and investors.
It certainly isn’t helpful to the company’s balance sheet – it will increase net debt to 2.8 times Ebitda at the end of this year, according to Martin Deboo, analyst at Jefferies. That further constrains the company’s ability to participate in industry M&A.
However, the shares rose about 3% on Thursday. This indicates the outcome was no worse than feared. Analysts at Bernstein had suggested back in April, when Indivior was indicted by the Justice Department, that the worst case scenario could be $1.5 billion.
What’s more, the settlement does not bar Reckitt from participating in U.S. government programs, such as one that provides free baby milk. Losing this would have been extremely damaging to the infant nutrition business that Reckitt added when it acquired Mead Johnson.
But even more important is that by resolving the issue, Reckitt can now move forward unencumbered. Outgoing chief executive Rakesh Kapoor deserves credit for finalizing the matter before his departure, leaving a clean slate to his successor, Laxman Narasimhan.
The potential liabilities threatened to hamper the logical conclusion of Reckitt’s separation into two divisions, one focused on household products, and the other on consumer health.
Narasimhan will still face significant challenges when he arrives shortly. Chief among them is reinvigorating sales growth, which stalled under his predecessor. He must also determine whether Reckitt's industry-leading margins can be sustained, or whether some profitability must be sacrificed to step up investment and turbo charge sales growth.
But at least he can now pursue a break-up – assuming he wants to – without the U.S. legal risks hanging over him.
To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.
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