Reckitt Benckiser tumbles on litigation woes

Consumer goods giant Reckitt Benckiser tumbled on Monday amid concerns about potential litigation.

At 0910 BST, the shares were down 8.9% at 4,085p, after a US jury found on Friday that infant formula by Abbott Laboratories had caused a girl to develop a dangerous bowel disease. Abbott was ordered to pay $495m in damages. This consisted of $95m compensatory damages and $400m punitive.

Jefferies said in a research note: "This is likely to depress sentiment on the risk for both cited defendants (Reckitt and Abbott) in these claims, we think.

"RKT share price we estimate is already discounting for circa £3/$3.5bn of liability risk next year. But with its own new individual trial due to start on 30 September and multi-district litigation class action gaining momentum, that risk may be extended this week we think."

Jefferies pointed out that the $495m award against Abbott in the latest NEC (necrotizing enterocolitis) case on Friday follows the $60m award against Mead Johnson - which is the Reckitt Nutrition subsidiary - in March.

Dan Coatsworth, investment analyst at AJ Bell, said: "Shares in Reckitt have slumped to their lowest level since January 2013 after negative read across from a court case in the US involving Abbott Laboratories. A court has ordered Abbott to pay $495 million over allegations it hid the risks around its premature infant formula.

"Reckitt’s shares have been severely depressed since March as the market worries about the scale of any potential liabilities if the company loses legal battles around the safety of its baby formula.

"A US court case has already awarded $60 million in damages to a mother who said her baby died after consuming Reckitt’s Enfamil baby formula. Several hundred similar claims have been in filed in US courts targeting Reckitt and Abbott.

"The more setbacks for either baby formula maker, the more complicated it becomes for Reckitt to sell its nutrition arm. Reckitt last week indicated it might be up for sale, saying it was considering all options for the business.

"Any potential buyer could be put off by the possibility of liabilities from the court cases, meaning the pressure is growing for Reckitt to find a way to ringfence a large amount of money in case it loses big time in the court battles."