Fresh order

London, Oct. 7 (Reuters): Britain’s Reckitt Benckiser Plc agreed on Friday to buy Boots Group’s non-prescription drugs business for a higher-than-expected ?1.926 billion in cash, bringing its Lemsip and Disprin cold remedies together with Boots’s Nurofen painkiller.

British health and beauty group Boots, which must sell the business before it can merge with Alliance Unichem Plc, said it intended to return around ?1.43 billion, or 200 pence a share, to shareholders via a special dividend.

Initial concerns that Reckitt had overpaid were soon swept away as its well-respected management team outlined big cost savings, and its stock rose 2.5 per cent to ?17.50.

Investors also cheered the high price won by Boots for its business, known as Boots Healthcare International (BHI), lifting its shares 0.9 per cent to 627-1/2p after an early high of 640p.

“This was a full price, but there are considerable synergies while this is a high growth and high margin business and will be earnings enhancing from year one,” said Reckitt chief executive Bart Becht in a conference call.

Reckitt hopes to achieve cost savings of ?75 million and ?130 million of net working capital gains by 2008, and the deal is expected to be earnings enhancing immediately excluding a ?150 million one-off charge.

Analysts said the cost savings were nearly double those expected, while Reckitt had the reputation of always hitting or beating its targets, even going back to its cost saving targets set when Reckitt took over Benckiser in 1999.

“Strategically the deal is hard to fault. Reckitt is buying good brands and has a good record on delivering on synergies,” said analyst Richard Workman at Oriel Securities.

Becht said Reckitt was paying around 20 times earnings before interest, tax, depreciation and amortisation against recent similar deals, which were priced at about 13 or 14 times.