Reckitt in deal to buy Mead Johnson
Baby food likely be one of Asia’s fastest-growing food categories
Reckitt Benckiser Group Plc agreed yesterday to buy Mead Johnson Nutrition Co for $16.6 billion, taking the British consumer-products maker into the baby-formula market for the first time as it seeks to boost slowing sales growth.
The maker of Lysol cleaners will pay $90 a share in cash, the same price it indicated when it announced it was holding advanced negotiations on the deal on Feb 1.
Mead Johnson provides a means of stoking growth at Reckitt Benckiser, whose sales are advancing at the slowest pace in more than five years amid tough conditions in Europe and emerging markets like Brazil.
The British company yesterday forecast 3% growth in like-for-like sales this year, below analyst estimates for a gain of about 4.2%.
“In 2017, we expect macro conditions to remain challenging, and for a number of existing headwinds to persist in the first half,” chief executive Rakesh Kapoor said in a statement.
Reckitt Benckiser shares rose 1.1% to 7,317 pence in early London trading yesteday. Mead Johnson declined 1.1% to $83.05 in New York trading on Thursday.
The announcement of the deal was accompanied by Reckitt Benckiser’s fourth-quarter results, which showed sales missing expectations. Like-for-like growth of 1% compared with a company-compiled consensus estimate of 1.7%.
“The performance continues the uninspiring trend the company has been experiencing,” James Edwardes Jones, an analyst at RBC Europe, said in a note.
Reckitt said the debt-funded acquisition of Mead Johnson would add to per-share earnings in first full year and would be “double-digit accretive” by the third year.
“The looks achievable to us at first blush,” Martin Deboo, an analyst at Jefferies, said of Reckitt’s cost-saving forecast.
To deter possible counter bids, the companies have set a break-up fee of $480 million.
Mead Johnson has been regarded as a possible takeover candidate almost since since the maker of Enfamil went public in 2009, with Danone SA and Nestle SA considered the most likely buyers.
The offer price values the target at 17 times earnings compared with multiples of 20 that Nestle paid for Pfizer Inc’s baby-formula unit in 2012 and 22 that Danone paid for baby-food maker Numico in 2007, according to John Baumgartner, an analyst at Wells Fargo.
Mead Johnson will add baby formula to a portfolio of consumer brands that include Nurofen painkillers, Strepsils throat lozenges and French’s mustard.
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.
With a 10% share of the baby-food market, Mead Johnson trails Nestle and Danone globally, though it’s second only to Nestle in Asia, the biggest market.
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 twochild policy is set to increase spending on formula, while demand in Southeast Asian countries including Indonesia and Vietnam is also likely to climb as more women enter the workforce.