- Shares fall on read-across from US verdict
- Liabilities could total up to $1.5 billion
- News muddies potential unit sale
Shares in hygiene, health and nutrition products powerhouse Reckitt Benckiser (RKT) sank as much as 10% to around £40.40, their lowest level since 2013 after a US jury found Abbot Laboratories’ (ABT:NYSE) specialised infant formula caused an Illinois girl to develop a dangerous bowl disease.
In pre-market trading, Abbot Labs’ shares were around 7% lower. Reckitt shares are down by more than a fifth year to date and by close to a third over the last year.
Almost 1,000 cases have been racked up against Abbot Laboratories and Enfamil formula-maker Reckitt Benckiser in recent years, claiming some of their products caused cancer.
In March, Reckitt shares dropped 15% following the first case to go to trial which resulted in a $60 million jury verdict for the plaintiff. Reckitt is appealing on the basis the plaintiff’s case relied on ‘unsound’ expert testimony.
WHAT COULD THE VERDICT MEAN FOR RECKITT?
On Friday (26 July), a Missouri state court ordered Abbot Labs to pay $495 million in damages after Illinois resident Margo Gill alleged the company failed to warn its formula could cause a potentially deadly disease called NEC (necrotizing enterocolitis) in premature babies.
Abbot said it ‘strongly’ disagreed with the verdict and would look to appeal the decision.
Analysts at JPMorgan said based on previous litigation cases involving talc and opioids they believed the settlement could imply a total settlement cost to Reckitt of between $500 million and $1.5 billion.
Jefferies said the latest news was likely to depress sentiment for both companies in the near term.
WHAT THE EXPERTS ARE SAYING
Investment analyst Dan Coatsworth at AJ Bell commented: ‘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 possibilities of liabilities from 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.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor (Ian Conway) own shares in AJ Bell.
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