Analysts have said the potentially 16.7 billion will see the “health and hygiene” company move into “infant nutrition” which isn’t such a big leap considering the grey area between healthcare and food.
The Reckitt Benckiser Group Plc, best known for its Durex condoms, Scholl footcare products, Nurofen tablet, is in advanced talks with Mead Johnson Nutrition Co for a potential $16.7 billion deal.
If the results of the talks conclude in a merger, it would take the British consumer goods manufacturer into the baby formula market and boost its presence outside Europe.
Reckitt has stated that it was offering a $90 per share cash offer, which essentially is a 29.5% premium to Mead’s share price on Thursday which closed at $86.39 in New York.
On the London Stock exchange, Reckitt shares reacted to the news by rising by 4% to 7,102 a pence.
Incidentally enthusiasm about the potential deal have overshadowed questions pertaining to offer price and the strategy of going up against rivals such as Danone and Nestle.
“The shares are up because the deal as mooted is likely to be meaningfully EPS (earnings per share) enhancing,” said Philip Haworth, an investment manager at Kames Capital.
He went on to add, “That alone doesn’t mean it is a good deal but management at RB have earned the right to be given the benefit of the doubt and to explain the strategic benefits to shareholders.”
The deal could be an upcoming strategy for British companies to outgrow the impact of Brexit. It is the latest in a series of UK companies getting active in the M&A scene ever since Britain chose to leave the European Union.
Reckitt disclosed “the parties are presently engaged in a period of due diligence and contract discussion”. Further announcements would be in appropriate time.
Mead, with its Enfamil brand, is the world’s number two infant formula manufacturer. In 2009, it was spun off from Bristol-Myers Squibb, a U.S. drug manufacturer.
As per Wells Fargo’s analysts, Reckitt’s offer price represents a multiple of 17 times Mead’s estimated 2017 earnings before interest, tax, depreciation and amortization (EBITDA).
Analysts say the premium is in line with other deals in the consumer segment and is appropriate given its price promotion and more importantly the regulatory changes in China.
Meads biggest market China has lately seen intense competition midst a shirt in buying habits from traditional retailers to speciality stores and e-commerce sites.
According to analysts from Bernstein, the deal could boost Reckitt’s earnings by 12% in 2018.