Durex maker moves into baby food with $16.6bn purchase

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Powered by Guardian.co.ukThis article titled “Durex maker moves into baby food with .6bn purchase” was written by Julia Kollewe, for theguardian.com on Friday 10th February 2017 18.08 UTC

Reckitt Benckiser, the company behind Nurofen, Dettol and Durex, is moving into baby food with the .6bn (£13.3bn) acquisition of a US infant formula maker, its biggest deal to date.

Mead Johnson Nutrition manufactures Enfa formula, which it says is the main infant nutrition brand in the world and will become the combined group’s biggest “powerbrand”, with sales of .7bn a year. The company also produces Choco Milk, Lactum and other milk-based products for children.

Reckitt’s top brands at present are Durex condoms, Mucinex cough remedy and Dettol and Lysol cleaners. Adding baby food to its vast portfolio of household products will raise the company’s standing among consumer multinationals Unilever, Nestlé, Danone and Procter & Gamble.

Mead is the third-largest baby food company in the world, after Nestlé and Danone, according to market research company Euromonitor International. The global baby food market is forecast to grow by between 7.4% and 8.5% annually in the coming years.

Reckitt’s chief executive, Rakesh Kapoor, hailed the acquisition as a “significant step” forward for the company. “This deal will in one move almost double our consumer health business. This is about trusted relationships with the medical community. Maybe this company [Mead] is not very well known in the UK investor base, but it fits our definition of consumer health,” he said.

Kapoor said the acquisition would strengthen Reckitt’s presence in developing markets, particularly China. These will make up 40% of the combined group’s sales, with China the second-largest market after the US. Five years ago, China was not in Reckitt’s top 10 markets, he said.

The deal is estimated to bring £200m in annual cost savings. The two companies have not discussed job losses yet, Kapoor said, but employees in the UK will not be affected, as Mead only has a small business in the country. It generates half of its sales in Asia, one-third in North America and Europe (mostly in the US), and 17% in Latin America. Mead employs 7,600 people globally, while Reckitt has a workforce of 37,000.

The regular Enfa infant formula is not on sale in the UK, but some specialist Enfa products are.

Kapoor said it was too early to say whether Enfa would be sold more widely in the UK after the takeover. But Reckitt noted that it had made a success of taking on localised brands and rolling them out across the world.

Lianne van den Bos, a senior analyst at Euromonitor, said: “Reckitt Benckiser’s takeover bid of Mead Johnson is one that surprised us all as it signifies little overlap with their current business, but it hints at future growth strategies for the consumer packaged goods industry.

“Health nutrition is the way forward and marks many companies’ changing direction for growth, the latest examples being Danone and Nestlé.

“Reckitt Benckiser’s plunge in[to] a market [China] set to drive half of future global baby food growth could well pay off in the long run.”

Reckitt is paying per share in cash. Including Mead’s debt, the value of the deal is .9bn. The takeover needs to be approved by shareholders and regulators.

Top ten companies in the baby food market
The top 10 companies in the baby food market. Photograph: Euromonitor International

The company, founded in 1905 by Edward Mead Johnson, later passed into the ownership of US drugmaker Bristol-Myers Squibb and floated on the stock market when it was spun off eight years ago.

The acquisition comes after a tough year for Reckitt that saw slowing sales, a toxic disinfectant scandal in South Korea and a fine in Australia, as well as shareholder anger over Kapoor’s £23m pay package.

Several South Korean retailers dropped Reckitt’s products after a humidifier steriliser made by the company caused deadly lung problems. Kapoor issued a personal apology at the company’s annual meeting in May. In Australia, Reckitt was fined AUS.7m (£1m) for making misleading claims about its Nurofen painkillers.

Mead faces a lawsuit from a whistleblower (paywall), a former employee alleging that she was unfairly dismissed after raising safety issues over bottles of infant formula.

guardian.co.uk © Guardian News & Media Limited 2010

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