British consumer goods company Reckitt Benckiser is expanding into the infant milk market by acquiring Mead Johnson Nutrition, the maker of Enfamil baby formula, for $16.6 billion.
According to Reckitt, the Enfa family of brands is the world’s leading infant and children’s nutrition franchise by sales, with 67% of Mead Johnson’s sales coming from the developing markets of Latin America and China.
Reckitt, the maker of expects the Lysol cleaners, Durex condoms and Mucinex cold medicine, said on Friday it will pay $90-per-share in cash for Mead Johnson, a 30% premium to the stock’s close on Feb. 1, when the day before Reckitt disclosed the companies were in merger talks. In trading Friday, the stock rose 5.5% to $87.60.
“The acquisition of Mead Johnson is a significant step forward in RB’s journey as a leader in consumer health,” Reckitt CEO Rakesh Kapoor said in a news release, noting that the combined company would have about 40% of its sales in developing markets and China would be its second-largest market after the United States.
Mead Johnson, which was spun off from Bristol-Myers Squibb in 2009, reported sales of $3.7 billion in 2016. The company “has long been seen as a potential takeover target for Danone or Nestle but not Reckitt, since the British company has never been in the baby formula market,” Reuters reported.
Mead Johnson’s shares had fallen by a third over the past two years, as it has lost market share in China due to increased competition and changing consumer habits.
“Building brands and raising performance is stock-in-trade for RB, and the growth potential for infant milk sales is exciting, especially in the emerging markets,” Steve Clayton, manager of the HL Select UK Shares fund at Hargreaves Lansdown, which owns shares of Reckitt, told Reuters.
Reckitt expects the global infant and children’s nutrition category to grow at a rate of approximately 3-5% per annum in the medium to long term, citing demographic trends, particularly in developing markets, such as urbanization and increasing spend on premium nutrition, as well as changes to China’s one-child policy.