Reckitt Benckiser has poached a top executive from PepsiCo to serve as its chief executive, passing over internal candidates in favour of a consumer industry veteran with a strong record of rekindling growth in both mature and emerging markets.
Laxman Narasimhan, who is currently the chief commercial officer of the US-based soft drinks and snacks group, will join Reckitt in mid-July for a transition period and succeed Rakesh Kapoor on September 1.
Mr Narasimhan, 52, grew up in India, where he completed an engineering degree and founded a start-up before moving to the US for business school. Before joining Pepsi in 2012, he spent 19 years working as a consultant at McKinsey, where he advised large retail, healthcare and consumer goods companies on operations, strategies and dealmaking.
Chris Sinclair, Reckitt’s chairman, said the board had considered about 60 candidates for the top post before selecting the company’s first outside leader since it was formed in 1999 from the merger of Reckitt & Colman of the UK and the Dutch company Benckiser.
“The board unanimously thought Laxman was ideally suited,” said Mr Sinclair. “At Pepsi, he has proven he can operate at scale, while at McKinsey he dealt with a lot of transformations and M&A, which are vital to us as we look at our next chapter. But mostly he is steeped in the consumer sector and that’s the dimension that really counts.”
Mr Narasimhan arrives at a delicate time for Reckitt as it tries to revive sales growth at its health division — its most profitable arm, accounting for nearly two-thirds of group revenue. The maker of Nurofen painkillers and Mucinex cold treatments had a 3 per cent underlying sales growth last year at the health unit, instead of the up to 5 per cent it had hoped for.
Mr Narasimhan will “directly lead” the health unit, the company said in a statement, signalling the importance of the turnround effort.
The appointment of an outsider does not mean that Reckitt is changing its strategy, insisted Mr Sinclair. The company has been laying the groundwork to separate its two main businesses — health on one side, and hygiene and household products on the other — in a project dubbed internally as RB 2.0.
“We are committed to continuing the journey on RB 2.0, [and are] actively working on the separation and improving performance from it,” said Mr Sinclair. The aim “is to be in a position when it’s completed to have some strategic alternatives to build value”.
Iain Simpson, an analyst at Barclays, noted that “there was an emerging preference for an external CEO among long-only, institutional investors” and that the decision to hire Mr Narasimhan “could be taken as evidence that RB’s board understood the need to break with the string of accidents in recent years.”
Another challenge will be dealing with a US Department of Justice case against a former Reckitt subsidiary, which has been charged with using a fraudulent marketing scheme to boost prescription sales of an opioid addiction treatment. Although Reckitt spun the business out into a separate company called Indivior in 2014, investors are concerned that it may have to pay some of the $3bn in fines the DoJ is seeking from Indivior.
Reckitt’s shares have underperformed the MSCI Europe Consumer Staples index this year and are trading at a discount to peers, according to Capital IQ. It is valued at a forward price-to-earnings multiple of 18.3 times, compared with 23.2 times for Procter & Gamble and 21.3 times for Unilever.
Reckitt shares rose 0.3 per cent at mid-day on Wednesday in London, compared with a 1 per cent rise for the FTSE 100.
Mr Narasimhan said he relished the chance to lead Reckitt, which had “world-leading brands” with wide appeal from China to South Africa. “I have respected RB from a distance, and admired its performance-oriented culture and growth DNA,” he said in an interview.
“But in a fast-changing world and with the rise of digital commerce, we will have to evolve our capabilities and culture.”
Samuel Johar, the chairman of executive recruitment firm Buchanan Harvey & Co, said Mr Narasimhan was a good pick.
“Laxman Narasimhan missed out on the top job at PepsiCo but he is a very capable executive,” said Mr Johar. “The combination of his consulting and industry experience gives him both the breadth and depth of knowledge of the consumer sector.”
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