Activist investor builds stake in Reckitt after baby formula verdict

Activist investor Eminence Capital has built a stake in Clearasil and Durex maker Reckitt, piling further pressure on the consumer goods group whose share price has plunged over fears that its baby formula business could be on the hook for billions in damages.

Eminence, which has been leading an activist campaign against FTSE 100 gambling group Entain, owns at least 0.5 per cent of Reckitt’s stock, after it began buying up shares in March as they sank towards an all-time low, according to people familiar with the matter.

Shares in Reckitt, which also manufactures Lysol detergent and Durex condoms, are down about 15 per cent this year after a US jury ruled in March that one of its infant formulas had caused the death of a premature infant, and ordered the consumer goods company to pay $60mn in damages.

Analysts have estimated the total liability from the infant formula litigation could be anywhere between £400mn and £8bn.

The group’s market value was about £32bn at market close in London on Monday.

The presence of the New York-based activist fund, which has about $6.7bn of assets under management, on Reckitt’s shareholder register was likely to increase calls for Kris Licht, its chief executive, to push through a sale of the baby formula division, the people said.

Eminence also believed Reckitt’s management could do more to improve operating margins, which have shrunk in recent years, they added.

Eminence declined to comment. Reckitt did not immediately respond when contacted for comment.

Other activist investors were also circling Reckitt, according to people familiar with the matter, with investors believing that the fallout from the Illinois jury’s verdict had disproportionately weighed down its stock price. Eminence’s shareholding, which has not previously been reported, is below the UK disclosure threshold of 3 per cent.

Reckitt’s acquisition of infant formula manufacturer Mead Johnson for $17bn in 2017 is now widely regarded as a misguided move. The company has previously tried unsuccessfully to offload the business and sold its Chinese unit to private equity group Primavera for $2.2bn.

Reckitt has recently appointed a new chair, former Sky boss Sir Jeremy Darroch, who is also on the Disney board.

Speaking to the Financial Times following a 14 per cent one-day share price decline in March, Licht said Reckitt would appeal against the verdict and insisted that it had no liability.

Eminence has yet to meet Reckitt’s management and board in person, but has corresponded with the company. It is unlikely the activist investor would push for a management shake-up, according to a person familiar with its thinking.

Eminence founder and chief executive Ricky Sandler earlier this year took a board seat at Ladbrokes owner Entain and played a pivotal role in pushing for Entain’s chief executive Jette Nygaard-Andersen to leave and the naming of a new chair.

As well as the infant formula crisis, Reckitt shareholders have contended with a fourth-quarter revenue hit in the company’s Middle East business, after it reported an accounting anomaly.

This article has been updated to correct Reckitt’s market value at the Monday close and the quarter in which the company took a revenue hit after reporting an accounting anomaly.