US infant nutrition company Mead Johnson has revealed it has received a takeover offer from UK-based consumer health business Reckitt Benckiser.
“The company confirms that it is in discussions with Reckitt Benckiser with respect to its proposal to acquire the outstanding shares of Mead Johnson for $90 per share in cash,” the group said.
In a separate statement, Reckitt Benckiser suggested the talks are at an advanced stage. “The parties are presently engaged in a period of due diligence and contract discussion,” the company revealed. The deal, which would be worth $16.7bn and be funded through cash and debt, would boost Reckitt Benckiser’s health division and expand its presence in Asian markets.
The proposed price represents a premium of 29% above where Mead Johnson’s stock closed yesterday at $69.50. In after-hours trade following the group’s statement, the stock rose by almost 24% to $86 per share.
“Mead Johnson notes that no agreement has been completed, and there are no assurances that any transaction will result from these discussions,” the infant formula company cautioned.
The Enfa formula maker added it does not plan to make any further comment on the matter unless and until a formal agreement is reached.
Mead Johnson has often been touted as a potential takeover target since it was spun off by pharma group Bristol-Myers Squibb in 2009. The likes of Nestle and Danone have featured heavily in M&A speculation. However, as our analysis pages argued last week, a tie-up with Nestle is unlikely due to competition hurdles and Danone’s recent blockbuster acquisition of WhiteWave Foods is sure to put any further large-scale M&A on the back-burner.
Reckitt Benckiser’s portfolio includes Dettol cleaning products, pain-relief brand Nurofen and Durex condoms. The company also owns French’s mustard.
In 2015, Reckitt Benckiser generated net revenue of GBP8.87bn, operating profit of GBP2.24bn and net income from continuing operations of GBP1.74bn. The company is due to announce its 2016 results on 13 February.
Commenting on the news of Reckitt Benckiser’s bid, Sanford Bernstein analyst Andrew Wood said the proposed combination was “out of left field” but argued he does not expect any counter bids – from Nestle or Danone at any rate – meaning that the deal could close “fairly quickly”.
“The positives of the deal derive from Reckitt Benckiser’s excellent track record for acquiring/integrating business (whether improving margins, or reducing working capital and increasing cash flow) and then driving growth through consumer-focused innovations. And, we estimate that Reckitt Benckiser is paying a reasonable price of only 16.3x underlying EBITDA, which will mean the deal is likely to be highly accretive (we, prudently, estimate 12% in 2018),” Wood wrote in an investor note. “Concerns could be the distance from Reckitt Benckiser’s core and the turbulent times for infant formula in Mead Johnson’s biggest market, China.”