Reckitt Benckiser in talks to buy Mead Johnson for $16.7bn

Bloomberg

Reckitt Benckiser Group Plc emerged as a surprise suitor for perennial bid candidate Mead Johnson Nutrition Co., starting talks on a $16.7 billion purchase of the baby food maker to build its faster growing consumer-health business and bolster its
presence in Asia.
The companies are discussing an offer of $90 a share in cash, Reckitt Benckiser said. That would represent a 29 percent premium to Mead Johnson’s closing stock price. Reckitt Benckiser, based in Slough, England, would
finance the deal with cash and debt.
Mead Johnson soared 24 percent to $86 in after-hours trading in the US, while Reckitt Benckiser traded 0.3 percent lower to $17.47.
The acquisition would let Reckitt Benckiser, valued at $56 billion, add formula to a portfolio of consumer brands that includes Lysol cleaning products. Chief Executive Officer Rakesh Kapoor has held off on big deals in the past few years, though he’s always been on the lookout, after telling Bloomberg News late in 2015 that he could be interested in Pfizer Inc.’s consumer-health unit.
Kapoor has turned more to over-the-counter health products, with brands such as Mucinex and Scholl, for growth, with the home and personal-care divisions expanding more slowly. Hygiene represents about 40 percent of Reckitt Benckiser’s sales, compared with 33 percent for health, according to Bloomberg Intelligence.
Shares of Glenview, Illinois-based Mead Johnson have fallen about 34 percent from their 2015 peak, hurt in part by a resurgence in interest in breastfeeding in countries such as China. The company trails Nestle SA and Danone SA in the baby food market, though it’s second only to Nestle in Asia, the biggest market, according to Bloomberg Intelligence.
Globally, Mead Johnson had a 10 percent share of the baby food market last year, according to researcher Euromonitor International.
Mead Johnson confirmed the
discussions in a separate statement, and both companies said there is no
certainty that any transaction will
ultimately be agreed on.

Infant Formula
Baby food will likely be one of Asia’s fastest-growing food categories, even as the industry contends with near-term headwinds, Bloomberg Intelligence noted in December.
The category’s growth in China might be hurt by smaller baby-food makers slashing prices over the coming year, according to the note. Over the long term, China’s two-child policy will increase spending on formula while demand in Southeast Asian countries including Indonesia and Vietnam will also likely climb as more women enter the workforce, according to Bloomberg Intelligence.
In 2016, about half of Mead Johnson’s total sales of $3.7 billion came from Asia. The deal would be Reckitt Benckiser’s biggest-ever acquisition, surpassing its purchase of Durex condom maker SSL International Plc for about 2.5 billion pounds ($3.2 billion) in 2010, according to data compiled by Bloomberg.
Infant formula has been a sector that has drawn acquisition interest globally in recent years.
In 2012, Pfizer sold its infant nutrition business to Nestle for almost $12 billion. France’s Danone in 2015 sold its Dumex Chinese infant milk brand to a unit of China Mengniu Dairy Co. and used the undisclosed proceeds to take a bigger stake in Mengniu, the Asian country’s second-largest dairy manufacturer.
Danone is expected to complete its $10 billion acquisition of organic manufacturer WhiteWave Foods Co., whose Horizon label offers meals and snacks for children, in the first quarter. The European Commission gave conditional approval for the deal in December.