Reckitt Benckiser Group Plc made a surprise $1.4 billion counterbid for Schiff Nutrition International Inc., topping an earlier offer from Bayer AG for the maker of vitamins, supplements and nutrition bars.
The tender offer of $42 a share in cash will commence today, Slough, England-based Reckitt Benckiser said Thursday after U.S. markets closed.
The bid is 24 percent higher than Salt Lake City-based Schiff's last closing price.
Reckitt Benckiser and Bayer are competing for Schiff's fast-growing vitamins and nutritional supplements business, which the German drugmaker had sought to add to its consumer- health unit. Leverkusen, Germany-based Bayer agreed last month to buy Schiff for about $1.1 billion.
"This is not a done deal," Andrew Wood, an analyst at Sanford C. Bernstein, wrote in a note today. "There is certainly a possibility that Bayer may announce a counterbid to RB's offer, even though it would require Bayer eating its words that its current bid is already above what it considered as exceptionally fully valued."
Bayer is holding meetings today to assess the situation and evaluate next steps, according to three people close to the company who declined to be identified because the deliberations are private. No final decision has been made on whether it will make a counterbid or walk away, the people said.
Bayer declined to comment on Reckitt's offer, said Michael Schade, a spokesman for the Leverkusen, Germany-based company.
Reckitt Benckiser, the maker of Strepsil cold remedies and Gaviscon heartburn relief, said a purchase of Schiff wouldn't be dependent on financing because it could be funded from existing facilities. Buying Schiff would result in "significant synergies and that it would be immediately accretive to earnings on an adjusted basis," it said.
"If Reckitt Benckiser is successful with this bid, we believe this acquisition makes excellent strategic sense and good financial sense," Bernstein's Wood wrote.
The U.K. company's offer may draw interest in Schiff from other global consumer-health companies, Wood said, identifying Johnson & Johnson as the only other major player that doesn't have a position in the area of vitamins and dietary supplements.
There have been almost 170 takeovers of vitamin and nutrition products companies globally in the past decade, according to data compiled by Bloomberg.
Reckitt Benckiser's offer values Schiff at about 28 times earnings before interest, taxes, depreciation and amortization. That compares with the median of 18 times Ebitda in a survey of 13 similar deals over that period, Bloomberg data show.
"The deal is not cheap, but the multiples still seem reasonable," Wood said. Reckitt Benckiser could justify paying an even higher price if forced into a bidding war, he said.
The British company said it sees no reason why its tender offer for Schiff cannot close before the end of the year, "assuming prompt due diligence." The offer is subject to the termination of Schiff's agreement with Bayer.
Morgan Stanley is Reckitt Benckiser's exclusive financial adviser and Paul, Weiss, Rifkind, Wharton & Garrison LLP is giving legal advice. Reckitt Benckiser said it will file offer documents today with the Securities and Exchange Commission.
The company said it's prepared to sign a merger agreement "substantially similar" to the one Schiff has with Bayer and "looks forward to engaging with Schiff's board and is confident that they will recognize it as a superior proposal."
Schiff, whose Chief Executive Officer Tarang Amin would have received a $5 million bonus if the Bayer deal was completed by Dec. 31, may have to pay Bayer a $22 million breakup fee, according to a filing from the company in October.
Bayer's Oct. 29 agreement with Schiff allows the U.S. company to accept an unsolicited higher offer within 30 days, provided it pays Bayer the breakup fee.
Schiff makes Move Free joint-care pills, Tiger's Milk nutrition bars and MegaRed Omega-3 supplements. The company had sales of $258.9 million in the year ended May 31, according to data compiled by Bloomberg. Schiff gets 94 percent of revenue from the U.S., and has been "consistently gaining share in the U.S. vitamins market over the last two years," Bernstein said.
Reckitt Benckiser last month posted revenue that beat estimates, boosted by increased sales of health-related products and a turnaround in developed markets. Chief Executive Officer Rakesh Kapoor has introduced new products such as Durex Performax Intense condoms and boosted marketing spending to stem declines in slumping European markets while lifting sales in emerging regions.
Harold Thompson, an analyst at Deutsche Bank AG in London, said Reckitt Benckiser has been successful at extracting higher profits from a string of acquisitions since 2006, including Adams Respiratory Therapeutics Inc. and SSL International Plc, the maker of Scholl foot products and Durex condoms.
"Each deal has come at a healthy price and this one is no different," said Thompson in an e-mailed note. "The growth and margin improvement which have been promised with each deal have always come through and more." said Thompson, who recommends buying Reckitt Benckiser stock.
Reckitt Benckiser bought Chester, New Jersey-based Adams for $2.14 billion in 2008 and paid $4 billion in 2010 for London-based SSL.
Becky Herrick, a spokeswoman for Schiff, didn't immediately return a voicemail after regular business hours yesterday.