Health giant Reckitt Benckiser agreed to buy US infant formula maker Mead Johnson Nutrition for US$16.6 billion (about HK$129 billion) in a move that is its biggest deal ever and will help the company grow in China.
Following the acquisition of Mead Johnson, China will become Reckitt Benckiser’s second-largest market behind the United States.
The deal will also mark Reckitt Benckiser’s first step into the infant-food market, opening up a new market area for the British consumer goods company.
Reckitt Benckiser, whose brands include sore throat medicine Strepsils, the hair removal brand Beet, Durex condoms and antiseptic brand Dettol, said the deal was pitched at $90 per share and will “significantly strengthen” its presence in developing markets like China.
Its diverse portfolio of brands also includes Air Wick air fresheners, Finish dishwasher tablets and Strepsils throat lozenges.
Rakesh Kapoor, Chief Executive at Reckitt Benckiser said, “The acquisition of Mead Johnson is a significant step forward in Reckitt Benckiser’s journey as a leader in consumer health.”
He described Mead Johnson’s “Enfa” baby food brands as “a natural extension” to Reckitt Benckiser’s consumer health portfolio.
Mr Kapoor said that Mead Johnson was a “trusted brand” that would fit with Reckitt Benckiser’s “200-year history as the trusted maker of Dettol and other household products”. He added that the Mead Johnson deal was “structurally attractive”.
Reckitt said its goal is for the Mead Johnson business to perform at the upper end of estimated category growth of 3 to 5 percent per year in the medium to long term.
It estimated 200 million pounds in annual cost savings by the end of the third full year, will add to earnings in the first full year. It should add a double-digit percentage rate to earnings by the third year, Reckitt said.
Under Kapoor’s leadership, Reckitt has been on the lookout for a major acquisition for some time, and the Mead takeover will boost its US and Asia business and expand its health division.
The transaction would strengthen the British group’s position in developing markets – which will account for approximately 40 per cent of the combined group’s sales.
Mead Johnson had previously been tipped as a target for rival baby formula makers Danone and Nestle but the US company has agreed a $460m break-fee should the deal with Reckitt Benckiser collapse.
Mead Johnson chairman James Cornelius said the deal would provide “tremendous value” and described Reckitt Benckiser “with its strong financial base, broad global footprint, consumer branding expertise and dynamic business model (as) an ideal partner.”
Mead Johnson sells 70 products in over 50 countries, including its flagship “Enfa” line. The US company, which booked a net profit of $545 million (£436 million) in 2016 on sales of $3.7 billion (£3 billion), generates nearly half its revenues in Asia.
Mead Johnson belonged to Bristol-Myers Squibb until 2009, when its shares were floated on the stock exchange. It has regularly been the focus of takeover speculation, with food giants Danone and Nestle previously tipped as potential buyers.
London-listed Reckitt Benckiser, which generated sales of £8.87 billion in 2015, twice downgraded its forecast for organic, or self-generated, sales growth during last year.
Kapoor said 2016 was a good year in which they achieved broad-based growth and excellent margin expansion, despite challenging markets and an unusual number of issues.