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Reckitt Benckiser in advanced talks about US$16bn US baby food acquisition

Last updated: 14:55 02 Feb 2017 GMT, First published: 07:27 02 Feb 2017 GMT

Cilit Bang bottles
Reckitt said it expected to finance the proposed deal through cash and debt

Cilit Bang to Durex condoms maker Reckitt Benckiser Group PLC (LON:RB.) has revealed it is in advanced talks about the US$16.7bn acquisition of US baby food maker Mead Johnson Nutrition Co. (NYSE:MJN).

In a brief statement today, the FTSE 100-listed consumer products giant said it would pay $90 in cash for each Mead Johnson share, a 29.5% premium to Wednesday's close.

in early New York trading today, Mead Johnson shares leapt 24% higher to US$86.22. 

The US firm, the world’s third biggest baby food maker under the Enfamil brand, has long been rumoured as a takeover candidate for European players such as Nestle and Danone.

Reckitt shares also remained strong in late afternoon trading in London, up 4%, or 277p to 7,107p.

In its statement, Reckitt said: “The parties are presently engaged in a period of due diligence and contract discussion.”

It added: “There is no certainty that any transaction will ultimately be agreed, nor as to the terms on which any transaction might occur.”

The group said it expected to finance the proposed deal through cash and debt.

A deal with Mead Johnson would help Reckitt boost its US and Asia businesses at a time when some of its emerging market units have been under pressure.

Reckitt – under chief executive Rakesh Kapoor - has reportedly looking to make a big acquisition for some time.

Not convinced ...

But, analysts at UBS were not convinced the deal is the right one for the group.

In a note to clients, they said: "The deal is financially not a stretch to RB and we acknowledge that infant formula is an attractive category with high growth potential and channel synergies with RB's Health business.

“However, we are yet to be convinced on the strategic fit, particularly considering RB's increasingly diverse/fragmenting category exposure.”

Liberum analysts were similarly cautious.

In a note to clients, they said: “While investors have been waiting for some time for RB to execute the "big deal" most investors expected a transaction in the Consumer Health arena.

“While a deal for Mead Johnson would be clearly EPS enhancing and indeed transformative, it is unclear that all shareholders will welcome the addition of a new product category where RB has limited prior experience.”

Steve Clayton, fund manager for HL Select, however, was more upbeat, saying: “This looks like a return to form for the RB deal-making machine.

“At a quarter the size of RB, Mead Johnson is a big, but manageable step for RB, and further tilts the group away from Europe and toward the world’s North American and Asian growth engines.”

 -- Updates share price, adds further broker comment --

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