Reckitt Benckiser (RB.L) has plans to acquire Mead Johnson Nutrition (MJN.N) for $16.6 billion. This is its biggest ever deal through which it would be opening up a whole new market.
The British consumer goods company is looking forward to enhance its decelerating sales growth through the acquisition of this U.S. infant formula maker.
Reckitt Benckiser will pay a cash of $90 per share, which is the same price that it specified when it proclaims that it was conducting advanced negotiations on February 1. The offered price is a premium of 30% to the closing price of the stock a day before the Lysol cleaner maker revealed last week that it was in discussions to purchase Mead Johnson.
This deal will lead to cost savings of $250 million (200 million pounds) after 3 years, and add up to its earnings. If the debt of Mead Johnson is also included, this deal is worth around $17.9 billion.
James Cornelius, the chairman of Mead Johnson said that the offer provided by Reckitt would give great value to its shareholders.
Mead Johnson offers a means of strengthening progress at the UK company, whose sales are growing at the slowest speed in over five years amidst harsh conditions in Europe and other emerging markets such as Brazil. On Friday, Reckitt Benckiser predicted a growth of 3% in like-for-like sales in 2017, which is below the estimates of analysts for around 4.2% gain.
Rakesh Kapoor, the Chief Executive Officer said –“In 2017, we expect macro conditions to remain challenging, and for a number of existing headwinds to persist in the first half.”
In early London trading, the shares of Reckitt Benckiser surged to 7,317 pence, indicating an increase of 1.1%. On the other hand, in New York trading, Mead Johnson dropped to $83.05 by 1.1%.
According to Reckitt, its objective is that Mead Johnson should perform at the higher end of the projected category growth of 3-5% a year in the medium or long term.
It predicted annual cost savings of 200 million pounds by the third full year end. In the first full year, it’s hoping to add up to its earnings. By the end of the third year, it’s hoping to achieve a growth of double-digit percent rate.
Reckitt is planning to fund this acquisition with loans from banks like HSBC, Bank of America, Deutsche Bank, and Merrill Lynch. It also would raise funds by selling bonds. This deal will require approval from the shareholders of both the firms and regulators. If the shareholders of Reckitt reject the acquisition, the firm will have to pay $450 million to Mead Johnson.