Mead Johnson Deal Fits Reckitt Benckiser's Growth Formula

While it’s not surprising that Glenview, Ill.-based baby-formula maker Mead Johnson Nutrition Co. is being acquired, it is a bit unexpected that it will be by U.K.-based Reckitt Benckiser Group, maker of Lysol cleaners, Durex condoms and Air Wick air fresheners. The $90-a-share takeover, which was announced in London early this morning, is valued at $17.9 million when debt is included.

Mead Johnson, whose Enfamil and Nutramigen brands have global distribution, will become a new division of RB. Spun off from Bristol-Myers Squibb in 2009, it had sales of $3.7 billion in 2016.

“Mead Johnson's geographic footprint significantly strengthens our position in developing markets, which account for approximately 40% of the combined group's sales, with China becoming our second largest ‘Powermarket,’” RB CEO Rakesh Kapoor says in the statement announcing the deal. “We are confident that our deep understanding of consumer needs and our expertise in scaling global brands will deliver significant growth for the MJN portfolio.”



Mead Johnson “was long seen as a potential takeover target for Danone or Nestle but never Reckitt,” Reuters’ Martinne Geller reports. But in a conference call this morning with reporters, RB’s Kapoor said that it has been thinking about making an offer for Mead Johnson for several years.

“Analysts at Credit Suisse said the Mead Johnson acquisition ‘would seem to tick the financial logic rather better than the strategic logic, but opens up a lot of opportunities in a very attractive category,’” Geller reports. Steve Clayton, manager of the HL Select UK Shares fund at Hargreaves Lansdown, which owns shares of Reckitt, tells her that Mead’s poor recent performance was a risk.

“But building brands and raising performance is stock-in-trade for RB, and the growth potential for infant milk sales is exciting, especially in the emerging markets,” says Clayton.

“The purchase will add baby formula to a portfolio of consumer brands that include Nurofen painkillers, Strepsils throat lozenges and French’s mustard,” Paul Jarvis reports for Bloomberg. “Reckitt Benckiser has proven able to enter and thrive in new categories before, as it did when it acquired Durex condom maker SSL International Plc in 2010. And it already has a toe in the nutrition business from its 2012 purchase of Schiff Nutrition, which makes Omega-3 supplements and joint-pain pills.”

“Kapoor said Mead Johnson fits into Reckitt's consumer-health portfolio tangentially, just like its condom and footcare brand acquisitions have in the past,” writes Saabira Chaudhuri For MarketWatch

“Our strategy is about healthier lives and homes. Their mission is about enabling healthier lives from the very beginning,” Kapoor told reporters.

He also “described the deal as ‘an enriching solution for mums’ and an ‘important inflection point in our business’ doubling its presence in consumer health,” Alice Ross and John Murray Brown report for Financial Times.

In results also released this morning, RB posted “organic revenue growth of just 3% for 2016, its weakest in over a decade. Sales have been hit by a string of issues lately, including a failed foot-care innovation, a scandal in South Korea that led to its product being delisted, disruption in India after some high value bills were taken out of circulation,” MarketWatch’s Chaudhuri reports.

RB, which expects to close the MJN deal by the end of the third quarter of this year, “said it had ‘committed’ debt financing in place and that it expects to maintain a strong investment grade credit rating,” writes Martin Baccardax for The Street

“The bid price represents an 8.37% premium to Mead's Thursday closing price in New York, but is unchanged from the Feb. 2 price first floated by Reckitt, which was a 30% premium at the time it was announced,” Baccardax reports.

“This transaction recognizes the value of our leading brands and strong, global organization,” MJN CEO Kasper Jakobsen asserts in the announcement of the deal. “As part of Reckitt Benckiser, a bigger health care focused business recognized for its marketing capabilities, we will derive benefits from both increased scale and diversification.”

There’s that. Then there’s “shareholders have an opportunity to recognize significant and immediate value.”

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