Ireland-based Perrigo has acquired the rights to the Good Start brand in the US and Canada, as well as a plant in Eau Claire, Wisconsin from one of the largest players in the infant-formula market.
The specific financial details of the deal were not disclosed but Perrigo said it was investing US$170m “to expand and strengthen its US infant formula manufacturing”. Included that investment is $60m of spending to increase the production capacity at the Eau Claire site. Perrigo wants to expand its capacity by 100m 8oz bottles per year.
The deal and investment come amid the ongoing formula shortage in the US, which was sparked in February when a plant suspected of harbouring salmonella was closed.
Perrigo, the third-largest manufacturer of infant formula for the US and Canada, makes 17 store-brand infant formulas for the likes of Amazon and Walmart and already has plants in Vermont and Ohio.
But it said its current facilities could not keep up with the demand for infant formula. Perrigo said it invests around $20m a year in its existing factories.
The company will continue to supply Nestlé with Good Start formula, it said, so the Swiss group can fulfill its contracts with the Women, Infants and Children programme, a scheme in the US that supplies food to children under the age of five.
Perrigo president and CEO Murray Kessler said: “Long before this year’s infant formula shortage, we had been pursuing options to increase capacity to meet growing demand for our infant formula in the US. But this year’s industry shortage galvanised our commitment to not only invest to meet the demand for our store-brand and contract customers but also to help prevent future infant formula shortages.
“The purchase and expansion of [the Eau Claire plant] is the first major initiative in our recently-announced supply chain reinvention programme. It solidifies our long-term manufacturing supply of infant formula in the US, increases the availability of lower priced, high-quality infant formula to consumers and delivers value to Perrigo shareholders.”
Country-wide shortages of baby formula in the US this year were sparked by the closure of an Abbott Laboratories plant in Michigan in February.
The site was closed following consumer complaints related to cronobacter sakazakii, or salmonella illness, from the consumption of baby powders made at the plant.
The site was re-opened in July but the ripple effects of the closure led experts to call for more diversity in the market, which is dominated by a few major players.
Last month Abbott announced it would invest US$500m in a new make infant formula factory to increase production.