Reckitt Benckiser Group PLC is in talks to buy baby-food maker Mead Johnson Nutrition Co., according to people familiar with the matter, a move that would further a push by the U.K. consumer giant into the healthy-products arena.
Terms of the potential deal are unclear, but with a market value of $12.9 billion Wednesday and a stock that is down more than 30% from its 2015 high, Mead Johnson could fetch more than $15 billion with a takeover premium. Reckitt has a market value of GBP48 billion ($60 billion). As with all such negotiations, the talks could fall apart before a deal is reached.
Mead Johnson, based in Glenview, Ill., makes a range of nutritional products including Enfamil infant formula and the Sustagen milk supplement for children. It had net sales of $3.7 billion in 2016, down 8%. Half the company’s sales came from Asia, with 17% coming from Latin America and the rest from North America and Europe.
Reckitt Benckiser, based in Slough, England, comprises consumer brands such as Lysol cleaning spray, Durex condoms, Strepsils lozenges and Scholl footcare products. The company, which hasn’t yet reported 2016 results, had sales of GBP8.9 billion in 2015.
If the two companies were to combine, it could breathe new life into a push by Reckitt into higher-margin consumer-health products. Under Chief Executive Rakesh Kapoor, who took the helm in 2011, the company has made a string of acquisitions aimed at expanding the business. The consumer-health unit’s growth has slowed however.
In October, when it reported the results, Reckitt lowered its outlook for the year — the second time it had guided estimates slightly lower in three months — and reported overall third-quarter sales that missed estimates. Reckitt said then that like-for-like sales for the three months ended Sept. 30 rose by 2% compared with the same period last year, missing the 2.8% expected by analysts and marking the lowest growth during Mr. Kapoor’s tenure.
Reckitt’s performance signals how European consumer-goods companies have struggled to notch robust sales growth in tough macroeconomic conditions marked by currency swings and the rise of local competitors. Mead Johnson’s results have also been hampered by currency swings.
Mead Johnson was once part of pharmaceutical giant Bristol-Myers Squibb Co. In 2009, Bristol split off the nutrition company to focus on its core medical business. Mead Johnson has been the subject of takeover speculation ever since, given its exposure to fast-growing emerging markets and its manageable size for an acquirer.
The company was founded more than 100 years ago in Jersey City, N.J., by Edward Mead Johnson Sr., who started it after leaving Johnson & Johnson, which he co-founded with his brother.
A deal would come on the heels of a $10.4 billion tie-up between France’s Danone SA and U.S. organic-foods producer WhiteWave Foods Co., struck in July. Danone had been considered by analysts to be a logical buyer for Mead Johnson.
A number of other substantial mergers in the consumer industry have been announced since then, including British American Tobacco PLC’s agreement last month to take full control of Reynolds American Inc. in a $49 billion deal. Also last month, Luxottica Group SpA, maker of Ray-Ban sunglasses, agreed to a merger with French optical-lens maker Essilor International SA, a tie-up that would create a company with a combined market value of nearly $50 billion, and confectionery company Mars Inc. said it would buy veterinary and dog-daycare company VCA Inc. in a $7.7 billion deal.
By Dana Mattioli and Dana Cimilluca
Source: MarketWatch
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