(Reuters) - Reckitt Benckiser (RB.L) has agreed to buy U.S. baby formula maker Mead Johnson Nutrition MJN.N for $16.6 billion, giving the British consumer goods company a new product line and expanding its presence in developing markets.

Mead Johnson's product Enfamil baby formula are displayed on a store shelf in New York City, U.S., February 10, 2017. REUTERS/Brendan McDermid

Reckitt, the maker of Lysol cleaners, Durex condoms and Mucinex cold medicine, said on Friday it will pay $90 in cash for Mead Johnson shares, a 30 percent premium to their close on Wednesday last week, the day before Reckitt said it was in advanced talks with the maker of Enfamil baby formula.

Including Mead Johnson’s debt, the deal is worth $17.9 billion and Reckitt Benckiser said it would finance the acquisition with debt underwritten by Bank of America Merrill Lynch, Deutsche Bank and HSBC.

Reckitt - whose business has been hurt by a safety scandal in South Korea, slowing emerging markets and a “failed” Scholl product - also reported weaker than expected sales in the fourth quarter due to declines in Europe and North America.

The company also forecast 2017 sales growth below some analyst estimates, citing the ongoing impact of those issues and a challenging macroeconomic backdrop.

Reckitt’s shares were down 2 percent at 1542 GMT in London, while Mead Johnson was up 5 percent at $87.2 in New York.

INFLECTION POINT

Reckitt Chief Executive Rakesh Kapoor said the deal was “a significant inflection point” for the company, as its biggest acquisition will nearly double the size of Reckitt’s faster-growing consumer health business and expand its developing market presence by two-thirds.

China will become Reckitt’s second-largest market behind the United States following the acquisition of Mead Johnson, which was spun off from Bristol-Myers Squibb (BMY.N) in 2009.

Mead has long been seen as a potential takeover target for Danone (DANO.PA) or Nestle (NESN.S), but not Reckitt, since the British company has never been in the baby formula market.

“You might be surprised but we are absolutely not surprised. We’ve been looking at this for a number of years now as we have indeed other companies,” Kapoor told reporters.

Still, analysts saw the choice of Mead Johnson as proof that other, more obvious deals were unavailable in areas Reckitt has been targeting such as over-the-counter medicines.

“The deal would seem to tick the ‘financial logic’ rather better than the ‘strategic logic’, but opens up a lot of opportunities in a very attractive category,” said analysts at Credit Suisse.

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.

Steve Clayton, manager of the HL Select UK Shares fund at Hargreaves Lansdown, which owns shares of Reckitt, said the poor performance was a risk.

“But 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,” Clayton said.

EARNINGS BOOST

Reckitt said its goal was for the Mead business to perform at the upper end of an estimated annual sector growth rate of 3 to 5 percent in the medium to long term.

The deal should add to Reckitt’s earnings in the first full year after completion and by the third year it is expected to boost earnings per share by a double-digit percentage, with 200 million pounds of annual cost savings.

Kapoor said there been no talks yet about job losses at the combined businesses and no decision had been taken regarding six Mead Johnson executives, who would be owed a total of $31.7 million if they were let go within two years of a takeover.

Reckitt’s fourth-quarter revenue was 2.76 billion pounds, up 1 percent on a like-for-like basis, it said on Friday. Several analysts said the consensus was for growth of 1.7 percent.

For the full year, like-for-like revenue rose 3 percent and reported earnings climbed 6 percent to 256.5 pence per share.

Reckitt forecast like-for-like sales growth of 3 percent on a stand-alone basis for 2017, below analyst expectations, and reiterated a medium-term target of “moderate” margin expansion.

Slideshow (4 Images)

The company said the issues that hurt it in 2016 would persist into the first half of 2017.

Subject to shareholder and regulatory approvals, Reckitt expects the Mead Johnson deal to close by the end of the third quarter. The British company said it expected to retain a strong investment grade credit rating following the deal.

Robey Warshaw and Bank of America Merrill Lynch were Reckitt’s lead financial advisers, while Deutsche Bank was a financial adviser, corporate broker and sponsor. HSBC was also an adviser to Reckitt. Mead Johnson was advised by Morgan Stanley and Goldman Sachs.</s>British consumer-goods company Reckitt Benckiser Group PLC on Friday said it would buy baby-food maker Mead Johnson Nutrition Co. for $16.6 billion in a cash deal that would allow it to push further into the healthy-products arena.

The U.K. company, which had said earlier this month that it was in talks with the U.S. firm, said it would pay $90...</s>Reckitt Benckiser has agreed to buy U.S. infant formula maker Mead Johnson Nutrition for $16.6 billion, marking its first step into baby formula, it said on Friday.

Reckitt, the British maker of Lysol cleaners and Durex condoms, will pay $90 a share for the company, a 30 percent premium to the stock’s closing price the day before news of the company’s talks was reported.</s>Reckitt Benckiser has agreed to buy US infant formula maker Mead Johnson Nutrition for $16.6 billion, its biggest deal ever and opening up a new market area for the British consumer goods company. Reckitt, the British maker of Lysol cleaners and Durex condoms, said it will pay $90 a share for the company.

Start the conversation, or Read more at RTE.ie.</s>Reckitt Benckiser has confirmed the purchase of US baby formula maker Mead Johnson in a $16.6bn (£13.2bn) deal.

The move takes the UK-based consumer goods maker, whose products range from French's Mustard to Durex condoms, into the baby food market for the first time.

It also significantly increases the company's presence in Asia, which is now the FTSE 100 company's second biggest market.

Including Mead Johnson's net debt, the total value of the move is $17.9bn.</s>British household products company Reckitt Benckiser is acquiring Glenview-based baby formula maker Mead Johnson for $16.6 billion in a move that will help the company grow in China.

Reckitt Benckiser, which makes products ranging from condoms to Lysol, offered $90 for each Mead Johnson share, or about $16.6 billion. That's a 29 percent premium from Mead Johnson's closing stock price on Feb. 1 — before word of the deal began to be discussed publicly.

The total value of the transaction is $17.9 billion including Mead Johnson's net debt.

Mead Johnson, based in Glenview, Illinois, makes Enfamil infant formula and other nutritional drinks for infants and children.

Reckitt CEO Rakesh Kapoor says the deal strengthens its position in "developing markets," with China "becoming our second largest Powermarket."</s>Reckitt Benckiser Group agreed to buy Glenview-based Mead Johnson Nutrition Co. for $16.6 billion, taking the U.K. consumer-products maker into the baby-formula market and providing a catalyst for growth as its sales momentum slows.

The $90-a-share takeover will add to earnings within a year and lead to $250 million of cost savings after three years, the maker of Lysol cleaners said Friday. Reckitt shares gained as the deal outweighed a forecast of 2017 revenue growth that missed estimates.

Reckitt Benckiser's biggest-ever takeover boosts growth prospects as sales advance at the slowest pace in more than five years amid tough conditions in Europe and emerging markets like Brazil. A $480 million breakup fee reduces the chance of a counter-offer for Mead Johnson, which has been touted as a takeover candidate since the maker of Enfamil went public in 2009.

"This deal has potential to reignite top-line growth, the only area where the Reckitt model appears lacking," said Deborah Aitken, an analyst at Bloomberg Intelligence.

Reckitt Benckiser shares rose 0.2 percent at 951 a.m. in London. Mead Johnson gained 4.3 percent to $86.60 in pre-market trading. The offer price is the same as the companies indicated when they announced the negotiations on Feb. 1.

The bid values the target at 17 times earnings compared with multiples of 20 that Nestle paid for Pfizer's baby-formula unit in 2012 and 22 that Danone paid for baby-food maker Numico in 2007, according to John Baumgartner, an analyst at Wells Fargo.

The debt-funded acquisition will add to per-share earnings in first full year and will be "double-digit accretive" by the third year, Reckitt Benckiser said.

"This looks just about achievable to us at first blush," Martin Deboo, an analyst at Jefferies, said of the cost-saving forecast.

The announcement of the deal was accompanied by Reckitt Benckiser's fourth-quarter results, which were brought forward from Monday and missed expectations. Like-for-like sales growth of 1 percent compared with a company-compiled consensus estimate of 1.7 percent.

The U.K. company also forecast 3 percent growth in like-for-like sales this year, below analyst estimates for a gain of about 4.2 percent.

"In 2017, we expect macro conditions to remain challenging, and for a number of existing headwinds to persist in the first half," said Chief Executive Officer Rakesh Kapoor.

Although not previously considered by analysts to be an obvious acquirer of Mead Johnson, Reckitt Benckiser has had the U.S. company on its radar for a number of years, Kapoor said Friday on a conference call.

The purchase will add baby formula to a portfolio of consumer brands that include Nurofen painkillers, Strepsils throat lozenges and French's mustard. Reckitt Benckiser has proven able to enter and thrive in new categories before, as it did when it acquired Durex condom maker SSL International in 2010. And it already has a toe in the nutrition business from its 2012 purchase of Schiff Nutrition, which makes Omega-3 supplements and joint-pain pills.

One of the main reasons for the takeover is to increase Reckitt Benckiser's presence in the developing markets of Asia. Mead Johnson's 10 percent share of global baby-food trails Nestle and Danone, though it's second only to Nestle in Asia, the biggest market.

Baby food will likely be one of Asia's fastest-growing food categories, even as the industry contends with near-term headwinds, Bloomberg Intelligence noted in December.

Reckitt Benckiser said it expects to complete the takeover by the end of the third quarter and expects retain a "strong" investment-grade credit rating.

Robey Warshaw and Bank of America Merrill Lynch acted as joint lead financial advisers to Reckitt Benckiser, which also received advice from Deutsche Bank and HSBC. Mead Johnson was advised by Goldman Sachs Group Inc. and Morgan Stanley.</s>London: Reckitt Benckiser has agreed to buy U.S. baby formula maker Mead Johnson Nutrition for $16.6 billion, taking the British consumer goods company into a new area and expanding its presence in developing markets.

Reckitt, the maker of Lysol cleaners, Durex condoms and Mucinex cold medicine, said on Friday it will pay $90 in cash for Mead Johnson shares, a 30 percent premium to their closing price the day before Reckitt said it was in advanced talks with the maker of Enfamil baby formula.

Including Mead Johnson`s debt, the deal is worth $17.9 billion and Reckitt Benckiser said it would finance the acquisition with debt underwritten by Bank of America Merrill Lynch, Deutsche Bank and HSBC.

Reckitt - whose business has been hurt by a safety scandal in South Korea, slowing emerging markets and a "failed" Scholl product - also reported weaker than expected sales in the fourth quarter due to declines in Europe and North America.

Still, Reckitt`s shares were up 1 percent at 0915 GMT in London, as the Mead acquisition, which is Reckitt`s biggest ever, overshadowed the weak results.

Reckitt Chief Executive Rakesh Kapoor said the deal represented "a significant inflection point" in its business since it nearly doubles the size of its faster-growing consumer health business and expands Reckitt`s footprint in developing markets by two thirds.

China will become Reckitt`s second-largest market behind the United States following the Mead Johnson acquisition.

Reckitt said its goal was for the Mead Johnson business to perform at the upper end of an estimated sector growth rate of 3 to 5 percent per year in the medium to long term.

The deal should add to Reckitt`s earnings in the first full year after completion and by the third year it is expected to boost earnings per share by a double-digit percentage, with 200 million pounds of annual cost savings.

Reckitt`s fourth-quarter revenue was 2.76 billion pounds, up 1 percent on a like-for-like basis, it said on Friday. Several analysts said the consensus was for growth of 1.7 percent.

For the full year, like-for-like revenue rose 3 percent and reported earnings climbed 6 percent to 256.5 pence per share.

Reckitt forecast like-for-like sales growth of 3 percent on a stand-alone basis for 2017, below analyst expectations, and reiterated a medium-term target of "moderate" margin expansion.

The company said the issues that hurt it in 2016 would persist into the first half of 2017.

Subject to shareholder and regulatory approvals, Reckitt expects the Mead Johnson deal to close by the end of the third quarter. The British company said it expected to retain a strong investment grade credit rating following the deal.</s>Reckitt Benckiser has agreed to buy U.S. infant formula maker Mead Johnson Nutrition for $16.6 billion, its biggest deal ever and opening up a new market area for the British consumer goods company.

Reckitt, the British maker of Lysol cleaners and Durex condoms, said on Friday it will pay $90 a share for the company, a 30 percent premium to the stock's closing price the day before Reckitt said last week it was in talks to buy Mead Johnson.

Reckitt said its goal is for the Mead Johnson business to perform at the upper end of estimated category growth of 3 to 5 percent per year in the medium to long term.

It estimated 200 million pounds in annual cost savings by the end of the third full year, and will add to earnings in the first full year. It should add a double-digit percentage rate to earnings by the third year, Reckitt said.

Reckitt also reported fourth-quarter revenue of 2.76 billion pounds, up 1 percent on a like-for-like basis. For the full year, like-for-like revenue rose 3 percent.

Reported earnings for the full year were 256.5p, up 6 percent.</s>Reckitt Benckiser (RB) announced today that it has to agreed to buy US baby formula maker Mead Johnson Nutrition in a deal worth $16.6bn (£13.3bn).

The UK-based group said the purchase would strengthen its presence in fast-growing developing markets, particularly China, and provide “a significant step forward” in its efforts to become a “leader in consumer health”.

RB will pay $90 a share for Mead Johnson, a 30% premium to the stock’s closing price the day before news of talks between the two companies was reported earlier this month. In total, the deal is worth $17.9bn once the US group’s debt is taken into account.

RB said the goal for Mead Johnson was to perform at the upper end of estimated category growth of 3‐5% per annum in the medium to long term. It estimates that it will generate annual cost savings of £200m by the end of the third full year.

Mead Johnson, best known for its Enfamil brand, is the world’s third-biggest baby food maker, behind Nestlé and Danone. The deal will boost RB’s consumer health division and expand its operations in fast-growing countries in Asia, where Mead Johnson already holds a large share of the market, as well as in the US. In 2016, the company generated annual sales of $3.74bn, about half of which comes from Asia.

Rakesh Kapoor, Chief Executive Officer of RB, commented: “The acquisition of Mead Johnson is a significant step forward in RB’s journey as a leader in consumer health.

“Mead Johnson’s geographic footprint significantly strengthens our position in developing markets, which will account for approximately 40% of the combined group’s sales, with China becoming our second largest Powermarket.”

He added: “We are confident that our culture of consumer centric innovation and our expertise in scaling global brands will deliver significant growth for the Mead Johnson portfolio.”
• Obvious gains in terms of geographical coverage and category infill.
• Given the complementary nature of the product portfolio fit, it unlikely that there will be major issues ref. Competition regulations, so anticipate relatively fast implementation.
British consumer goods company Reckitt Benckiser agrees to buy U.S. baby formula maker Mead Johnson Nutrition for $16.6 billion.