LONDON: Reckitt Benckiser Group Plc emerged as a surprise suitor for perennial bid candidate Mead Johnson Nutrition Co, starting talks on a US$16.7bil purchase of the baby food maker to build its faster growing consumer-health business and bolster its presence in Asia.
The UK-based maker of Lysol cleaners said it’s in advanced negotiations to acquire the US company for US$90 a share in cash, 29% above Mead Johnson’s last closing price. Mead Johnson soared 24% to US$86 in after-hours trading in the US, while Reckitt Benckiser shares rose as much as 5.3% in London.
Speculation of a bid for Mead Johnson has been rife since the maker of Enfamil went public in 2009, though Nestle SA and French yogurt maker Danone have been considered the most likely buyers.
Reckitt Benckiser chief executive officer Rakesh Kapoor is striking as Danone is busy trying to complete its US$10bil acquisition of organic food maker WhiteWave Foods Co. Nestle, whose new CEO just started last month, would face too many antitrust obstacles in such a transaction, analysts at RBC Europe have said.
“Reckitt Benckiser had never even been considered as a potential acquirer,” Andrew Wood, an analyst at Sanford C. Bernstein, said in a note. “Infant formula was considered too far away from its core business. Hence the news was very surprising to us.”
The acquisition would let Reckitt Benckiser add formula to a portfolio of consumer brands that includes Durex condoms. 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% of Reckitt Benckiser’s sales, compared with 33% for health.
More recently, the company has been grappling with slowing growth in emerging markets and fallout from the sale of toxic disinfectant products in South Korea.
“Reckitt’s portfolio exposure to health, hygiene and home products presents a much cleaner takeout scenario when compared to antitrust issues which may otherwise arise in the case of a bid by a pure competitor to Mead,” wrote John Baumgartner, an analyst at Wells Fargo.
The offer price valued Mead at 17 times earnings compared with multiples of 20 that Nestle paid for Pfizer’s baby-formula unit in 2012 and 22 that Danone paid for baby-food maker Numico in 2007, Baumgartner said.
Shares of Glenview, Illinois-based Mead Johnson had fallen about 34% from their 2015 peak, hurt in part by a resurgence in interest in breastfeeding in countries such as China. With a 10% share of the baby-food market, the company trails Nestle and Danone globally, though it’s second only to Nestle in Asia, the biggest market. — Bloomberg