Reckitt acquires baby formula maker Mead in £13.2bn deal

The move will take the firm, which employs 1,200 employees at its Hull laboratory, into a new area and expand its presence in developing markets.

Reckitt, whose brands include Nurofen, Cillit Bang and Dettol, said it would pay 90 US dollars per share in cash for Mead Johnson. Including debt, the deal is worth 17.9bn US dollars (£14.3bn).

It added that the deal is a “significant step” forward in its attempt to become a global leader in consumer health and the tie-up is estimated to result in £200m in annual cost savings in three years.

Reckitt chief executive Rakesh Kapoor said: “The acquisition of Mead Johnson is a significant step forward in Reckitt Benckiser’s journey as a leader in consumer health.

“With the Enfa family of brands, the world’s leading franchise in infant and children’s nutrition, we will provide families with vital nutritional support. This is a natural extension to RB’s consumer health portfolio of Powerbrands which are already trusted by millions of mothers, reinforcing the importance of health and hygiene for their families.”

Under the leadership of Mr Kapoor, Reckitt has been on the hunt for a major acquisition for some time and the deal with Mead would boost its US and Asia business. China would become Reckitt’s second-largest market behind the US.

Mead makes more than 70 nutritional products in over 50 markets worldwide. Based in Illinois, it had annual sales of 3.7bn US dollars (£2.9bn) in 2016.

The deal still requires shareholder and regulatory approval.

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

Steve Clayton, fund manager at HL, said: “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.”

He added: “These results show those strengths remain intact and if RB can reinvigorate MJN, there could be a lot more to come.”

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.

Its fourth-quarter revenue was £2.76bn, up one per cent on a like-for-like basis, less than the expected 1.7 per cent growth.

It saw operating profit rise eight per cent to £2.4bn on revenue of £9.9bn for the full year.

Mr Kapoor added: “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.

“In 2017, we expect macro conditions to remain challenging, and for a number of existing headwinds to persist in the first half.”

Investing in future research

Reckitt Benckiser is investing £105m in a new Centre for Scientific Excellence in Hull.

It is the biggest research and development investment in the firm’s history.

The firm is more than a third of the way to completing the centre, located at its site on Dansom Lane, east Hull.

Construction started in June 2016 and it is due for completion in May 2018.

The project, which received £6m from the Regional Growth Fund, will complement other major research and development facilities in Germany, Italy, India, Thailand and the United States.

The three-storey building, which is nearly the size of four football fields, will be equipped with analytical, formulation and microbiology laboratories.

Reckitt Benckiser operates in more than 60 countries with headquarters in the UK, Singapore, Dubai and Amsterdam.

The company can trace its roots in Hull back to the 1840s.