UK consumer goods firm Reckitt Benckiser has moved closer to selling its China infant-formula business, according to a report.
Citing two unnamed sources, news agency Reuters said a deal valuing the business at more than US$2bn could be on the cards after the firm appointed an investment bank to oversee a sale process.
Reckitt said a month ago it planned to review its baby-formula business in China which it acquired from Mead Johnson in 2017 and which accounts for about 6% of group sales at the company.
In commentary accompanying the release of Reckitt’s 2020 results on 24 February, CEO Laxman Narasimhan said: “We are … taking decisive action to strengthen our portfolio with a strategic review of the infant-formula business in Greater China already underway.”
Reckitt said the performance of its infant-formula business in China was adversely affected by ongoing restrictions on cross-border trade activity between Hong Kong and mainland China, as well as a changing regulatory environment and lower birth rates.
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Reuters reports the company has now hired investment bank Morgan Stanley to conduct a strategic review of the unit.
The agency suggested a sale process could start in the second quarter after the bank gets initial feedback from potential buyers, which, its sources said, include both trade and private-equity firms.
However, the sources cautioned no decision has been made and the valuation of the infant-formula business could change due to the impact of Covid-19.
Commenting on the Reuters story, Martin Deboo, an analyst with Jefferies, said Reckitt shareholders “would seem to just want out” and that “on the reported information available to us it would appear that RB is contemplating getting out of their biggest infant-formula market at around half the price they paid to get in”.
Deboo suggested the most likely strategic buyers are either US healthcare business Abbott Labs or a Chinese local player.
just-food has asked Reckitt for a response to the speculation.
