EU CONSUMER CYCLICALS: Reckitt: divests 14% of business for ~£1.7b cash (edited)
(RKTLN; A3/A-)
Leaks started at £6bn+ valuation but final price today is nearly half. While it has guided to maintaining leverage around ~2.0x, today’s presser only mentions potential special dividends matching cash proceeds — if so post-sale leverage will rise by ~0.3x. We’ve consistently preferred Haleon over Reckitt, partly on NEC litigation risk. Euro-33s have swung from -35bps to +15bps over Haleon on recent underperformance but sterling continues pricing it -20bps inside Haleon 33s. 1H results come 24 July.
- It quotes an EV of US$4.8b, but net of $1.3b in contingent earn-outs, $0.8b in separation costs and the fact it will only sell 70%, cash proceeds look to be $1.65b (£1.25b)
- Yet it says this will enable a special dividend of US$2.2b (£1.65b), to be paid following completion (exp. by Dec-25)
- The brands being divested made up £2b/14% of group revenues and same amount on EBIT. Despite equal margins, it still sees it unlocking 300bp reduction in fixed costs (as % of sales) by end of 2027. Part of that may be on sales weakness on sold brands being removed (was LFL -7% in 1Q vs. core Reckitt +3%).
- No mention of leverage impacts (targets A-corridor/~2.0x)
- The other business tabled for sale is the Mead Johnson Nutrition arm (17% of group) and contains lawsuit tied baby formula Enfamil. The overhanging risk from lawsuits is a slow burner - analysts are eyeing a low to mid-single digit in USD billion bulk settlement (shared near equally between Reckitt & Abbott).
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SWAPS: Initial SLR Reform-Driven Widening In U.S. Spreads Fades
German ASWs vs. 3-month Euribor are 0.3-0.8bp wider on the day, with some modest outperformance in the long end.
- Spreads faded from session highs before decent demand at the latest 30-Year auction out of Germany provided fresh support.
- EUR swap spreads see similar moves.
- Increased hope for regulatory moves in EUR markets as U.S. SLR tweaks seemingly near may have driven the initial EUR swap spread widening, although such hope may be misplaced, factoring into the pullback from highs.
- Source reports pointing to an impending Fed meeting on the SLR (25 June) initially promoted U.S. swap spread widening after EUR swaps closed on Tuesday.
- However, U.S. spreads have since unwound that move, with long end spreads now below levels that prevailed ahead of the report, providing a limitation for any related EUR spread widening.
- The reversal in U.S. spreads came on the back of a BBG source report pointing to a reduction in the enhanced SLR, as opposed to a complete removal of Tsys from related calculations.
- Some analysts had pointed to potential for the latter, with market moves very much in line with typical buy the rumour sell the fact behaviour/some disappointment in the touted scale of the adjustment.
- Note that J.P.Morgan previously noted that they do not think SLR reform will “lead to a substantial increase in Treasury liquidity or bank buying of Tsys in the near term, as the largest U.S. banks are not particularly leverage constrained”.
MIDEAST: Iran's Supreme Leader to Address Nation Shortly
"IRAN SUPREME LEADER KHAMENEI TELEVISED MESSAGE TO BE AIRED SHORTLY - ISNA" - RTRS
- In terms of timings for Khamenei's appearance, Iran’s Tasnim News Agency reported that “The Supreme Leader's televised message to the Iranian nation will be broadcast in a few minutes,” without further details.
EQUITIES: Options size for Triple Witching Friday
Equity Option Expiry in Notional Term, some have increased. Gamma will provide some Volatility at and post Expiry on Friday.
US:
- SPX: $3.52T vs $3.41T Monday.
- NDX: $125.27bn vs $121.13bn.
- Amazon: $21.76bn vs $20.72bn.
- Apple: $26.27bn vs $24.99bn.
EU:
- SX5E: €331.78bn vs €325.63bn.
- SX7E: €21.17bn vs €21.19bn.
- DAX: €85.67bn vs €85.30bn.
- CAC: €4.36bn vs €4.51bn.
- UKX: £26.71bn vs £26.25bn.
- Lloyds: £3.06bn vs £3.05bn.
