Reckitt Benckiser agreed to acquire Mead Johnson Nutrition, the maker of baby formula, based in the U.S. That takes the Britain-based consumer goods business into new territory and expands its presence across developing markets.
Reckitt, which makes Durex condoms, Mucinex cold medicine and Lysol cleaners, said Friday it would pay $90 per share in cash for Mead Johnson. That represents a premium of 30% to the closing price of Mead on the day prior to Rickett announcing it was holding advanced talks with the Enfamil baby formula maker.
Including the debt of Mead Johnson, this deal is valued at $17.9 billion and Reckitt said it was financing its acquisition with debt that HSBC, Deutsche Bank and Bank of America will underwrite.
Reckitt, who has had its business hurt in South Korea by a scandal involving safety, a slowdown in emerging markets and a failed product in Scholl, posted weaker than had been expected sales for its fourth quarter because of declines in North America and Europe.
Nevertheless, shares of Reckitt were 1% higher in London, as the acquisition of Mead, which is the largest ever by Reckitt, overshadowed its weak results.
Reckitt CEO Rakesh Kapoor announced that the deal represented an important inflection point for the business since it close to doubles its size of its consumer health business, while expanding the footprint of Reckitt across developing markets by two thirds.
China will now become the second largest market for Reckitt behind that of the U.S. following the acquisition of Mead Johnson.
Reckitt announced that its goal was for the business of Mead Johnson to perform in the upper end of the estimated growth for the sector of between 3% and 5% annually over the medium- to long-term.
This deal will add to the earnings of Reckitt during the first complete year following its completion and by 36 months it should boost Reckitt’s per share earnings by a percentage in the double-digits, with an annual savings in costs of £200 million.
Revenue for the fourth quarter at Reckitt was £2.75 billion which was up 1% in same store sales. Analysts were expecting growth to reach 1.7% for the quarter.
For its full year, same store sales revenue increased 3% and earnings moved up 6%.
Reckitt has forecast same store sales growth to be 3% in 2017, which was below expectations on Wall Street.
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