Danone’s CEO has dismissed the idea of the French giant buying the Mead Johnson infant-formula business in the US owned by Reckitt Benckiser.
UK-headquartered Reckitt Benckiser, which is predominately focused on household products and has described Enfamil maker Mead Johnson as “non-core”, is facing a series of lawsuits in the US.
The cases relate to the intestinal disease necrotizing enterocolitis (NEC) and the Enfamil brand of Premature 24 infant formula.
It was the ongoing litigation process that Danone CEO Antoine de Saint-Affrique cited this week as he was asked to comment on speculation of potential interest in buying Mead Johnson during a conference hosted by Deutsche Bank.
Host Tom Sykes posed that question to de Saint-Affrique at the dbAccess Global Consumer Conference but without naming Mead Johnson, Reckitt or Enfamil. But the Frenchman clearly understood the nature of the approach.
“If your question is: 'Would you buy a very large business that does exist and [is] maybe for sale in the US?' The answer is no,” de Saint-Affrique countered. “If you look at the liabilities that are floating around this business, if you look at the challenges, it's not appealing at all.”
The Danone CEO added: “Let me be very clear. When we look at acquisitions, we look to three filters. A strategic filter – does it make sense; do we gain market share; do we gain capabilities; do we gain reach in a place where we are not?
“We look at our financials – ROIC, ROIC, ROIC – and we look at execution. Taking something that would bring us liabilities for the next 20 years is not something I will do for the company.”
Reckitt was ordered to pay $60m in damages in 2024 to a family whose baby died of NEC from consuming the Enfamil brand in question.
While Mead Johnson and peer Abbott Laboratories were cleared last year in a court in Missouri in relation to NEC, two other cases are pending this year against Reckitt. The company has denied the “material allegations” of the claims.
Meanwhile, Danone was among the infant-formula makers consumed this year by recalls related to the cereulide toxin found by a number of manufacturers in an ingredient from a same supplier in China.
Danone’s finance chief Juergen Esser has previously quantified the impact from the recall as being not “material” but the executives were asked for an update by Sykes at this week’s event.
“We are basically back to normal when it comes to presence on shelf,” de Saint-Affrique said. “When we come to our distribution, we see some effect on brand equity but no major effect on brand equity. It's going to normalise totally over time.”
The Danone chief also provided some interesting insight on China, the declining birth rates in the Asian country and, consequently, demand for infant formula.
De Saint-Affrique put the value of China’s formula market at €20bn ($23.28bn) ten years ago, the size of which has largely remained static, he suggested. However, over the same timeframe, births have dropped from 14 million to 8 million.
One reason is consolidation, de Saint-Affrique said.
“You have a market where seven years ago you had about 1,000 players. Today you have about 500 players. [The] top three players are 50-ish percent market share. [The] top three players in most of the countries in the world are 70-plus, so there is still consolidation potential.”
