Reckitt Benckiser Group plc, the maker of Durex condoms, agreed to acquire the K-Y brand of sexual lubricants from Johnson & Johnson (NYSE: JNJ) as the company continues to expand its collection of consumer-health labels.

The acquisition, for an undisclosed sum, from J&J’s McNeil- PPC Inc. unit includes global rights to the K-Y brand, according to a statement today. K-Y generated more than $100 million in sales last year in 50 countries.

Over the past two years, Reckitt Benckiser Chief Executive Officer Rakesh Kapoor has grown the Slough, England-based company’s consumer-health sales through acquisitions. The segment accounts for 28 percent of revenue, according to Sanford C. Bernstein, up from 5 percent in 2005. As profit margins in consumer health are wider than those in categories such as detergents, it could account for more than half of Reckitt Benckiser’s operating profit by 2015, Bernstein estimates.

The acquisition of K-Y “is just another small step to a bigger and bigger piece of the pie in consumer health,” Bernstein analyst Andrew Wood said today via e-mail.

The deal, expected to close in mid-2014, doesn’t include any employees or fixed assets, as McNeil-PPC will continue to manufacture K-Y products, Reckitt Benckiser said.

Created in 1917 and sold via prescription until 1980, K-Y is the best-selling brand in the $1 billion intimate lubricant category. About 70 percent of K-Y’s sales come from the U.S., Canada and Brazil, Reckitt Benckiser spokeswoman Andraea Dawson- Shepherd said by phone. K-Y competes with Durex lubricants sold under the Durex Play brand, introduced in 2003. Dawson-Shepherd said it’s “too early to say” if the company will make any changes to its current lineup of lubricant products.

Consolidating Industry

“Perhaps we will start to see the Durex brand appear on the K-Y product? Or K-Y condoms. Who knows -- but this is the sort of thing that RB does so well,” Bernstein’s Wood said.

Reckitt Benckiser is also interested in buying Merck & Co.’s over-the-counter drugs business, people with knowledge of the matter said last month. Kapoor has said only that the company plans to be an “aggregator” as the consumer-health industry consolidates.

Reckitt Benckiser was little changed at 4,817 pence at 9:45 a.m. in London. The shares have risen 0.6 percent this year.


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