British consumer health giant Reckitt Benckiser on Friday (10) bought US infant and child nutrition specialist Mead Johnson for $16.6 billion (£13.29 billion) in a takeover which targets rapid expansion in Asia.
The friendly deal was pitched at $90 (£72) per share and will “significantly strengthen” its presence in developing markets like China, Reckitt said in a statement.
The transaction will also take Reckitt, whose brands include Durex condoms and Nurofen painkillers, into the baby-food market for the first time.
The deal, which values Illinois-based Mead Johnson at $17.9 billion (£14.34 billion) including debt, is expected to generate £200 million of annual cost savings within three years of completion.
“The acquisition of Mead Johnson is a significant step forward in Reckitt Benckiser’s journey as a leader in consumer health,” said chief executive Rakesh Kapoor.
He described Mead Johnson’s “Enfa” baby food brands as “a natural extension” to Reckitt Benckiser’s consumer health portfolio.
Under Kapoor’s leadership, Reckitt has been on the lookout for a major acquisition for some time, and the Mead takeover will boost its US and Asia business and expand its health division.
The transaction would strengthen the British group’s position in developing markets – which will account for approximately 40 per cent of the combined group’s sales.
Mead Johnson chairman James Cornelius said the deal would provide “tremendous value” and described Reckitt Benckiser “with its strong financial base, broad global footprint, consumer branding expertise and dynamic business model (as) an ideal partner.”
Mead Johnson sells 70 products in over 50 countries, including its flagship “Enfa” line.
The US company, which booked a net profit of $545 million (£436 million) in 2016 on sales of $3.7 billion (£3 billion), generates nearly half its revenues in Asia.
Mead Johnson belonged to Bristol-Myers Squibb until 2009, when its shares were floated on the stock exchange. It has regularly been the focus of takeover speculation, with food giants Danone and Nestle previously tipped as potential buyers.
London-listed Reckitt Benckiser, which generated sales of £8.87 billion in 2015, twice downgraded its forecast for organic, or self-generated, sales growth during last year.
Its diverse portfolio of brands also includes Air Wick air fresheners, Dettol surface cleaners, Finish dishwasher tablets and Strepsils throat lozenges.
In early morning London trade, Reckitt’s share price rose 0.75 per cent to 7,293 pence on the British capital’s benchmark FTSE 100 index, which gained 0.54 per cent to 7,268.40 points.
The company made the announcement alongside its full-year results. Net profit, or earnings after taxation, rose five percent to £1.83 billion in 2016 on a 2.0-percent increase in revenues to £9.89 billion.
“2016 was a good year in which we achieved broad-based growth and excellent margin expansion, despite challenging markets and an unusual number of issues,” Kapoor added.
“In 2017, we expect macro conditions to remain challenging, and for a number of existing headwinds to persist in the first half.”