Reckitt CEO Leaves With the Housework Half Done

(Bloomberg Opinion) -- Rakesh Kapoor is going to leave Cillit Bang maker Reckitt Benckiser Group Plc with only half the housework done. The highly paid Chief Executive Officer will step down by the end of 2019 after eight years in the role.

He initially avoided the fate of many leaders who follow a successful and long-serving predecessor – in this case, Bart Becht – by delivering impressive returns to shareholders.

But his acquisition of Mead Johnson, announced in February 2017, changed all that, and the shares have underperformed the FTSE 100 index since.

The $16.6 billion deal stretched Reckitt's management too thin, leaving it vulnerable to the Petya cyber attack a few months later.

Reckitt CEO Leaves With the Housework Half Done

Kapoor responded by reorganizing the company, dividing the health business, including Nurofen and Mead Johnson's infant formula, from the more mature but cash generative hygiene and home business, containing Vanish and AirWick.

Early last year, Mead Johnson did look like it was finally improving, but then it hit another roadblock, in the form of disruption at a plant in the Netherlands, which shaved 70 million pounds ($90.2 million) off of third-quarter revenue.

But the deal had another unfortunate side effect. It stretched Reckitt's balance sheet. That meant Kapoor was not in a position to swoop on Pfizer Inc.’s consumer healthcare business when it came up for sale in late 2017. Whatever plans he may have had to revisit a transaction were scuppered when Pfizer announced late last year it would combine the division with that of GlaxoSmithKline Plc into a new unit. So much for Kapoor's long-held ambition of acquiring one of the consumer arms of the big pharmaceutical groups.

So the CEO, who seemed increasingly worn down by the group's troubles, leaves without having proved the strategic or financial benefit of Mead Johnson. As of now, it still looks like this was the wrong deal to have done.

Reckitt CEO Leaves With the Housework Half Done

He also hasn't taken the reorganization of Reckitt's two divisions to their logical conclusion: demerging or selling off the hygiene and home business. That unit could be worth about 20 billion pounds, assuming a 25 percent takeover premium, according to analysts at Jefferies.

Reckitt says it has begun the process of identifying a successor to Kapoor. Whoever is chosen must bring fresh energy to complete what he started. This includes finishing the integration of Mead Johnson and putting it on a steady footing. The new leader’s tasks don’t all need to be dull – there could be some excitement from splitting up the group.

The danger is that, during the changing of the guard, an activist investor barges in. European consumer goods have become a fertile hunting ground, and there is a glaring opportunity to deliver value from a break-up.

Kapoor had a chance of cleaning up. But he didn't seem to have the energy left to take it. His successor must. Otherwise an aggressive interloper might seize the opportunities instead.

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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