Here's how analysts are reacting to Reckitt Benckiser's move to acquire Mead Johnson

Helen Cahill
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Durex has dressed men up as sperm to promote its products (Source: Getty)
a href="">Just as analysts were digesting the news that Tesco and Booker Group are merging, Reckitt Beckiser (RB) has revealed that it is in talks to snap up US group Mead Johnson.

The deal values Mead Johnson – which manufactures baby milk – at $16.7bn.

Mike van Dulken of Accendo Markets said RB was making the move to access the higher-margin health food market and to benefit from Mead Johnson's presence in emerging markets in Asia.

Read more: The owner of Durex is in talks over a $16.7bn coupling with Mead Johnson

Steve Clayton, fund manager at Hargreaves Lansdown, said:

RB needs to convince the market that they have strong plans to reinvigorate the performance of Mead Johnson, and quickly pay down the debts they are taking on.

He said the market was reacting positively to the deal because RB has a strong track record of rebooting tired brands. RB's share price was up three per cent at time of writing.

"We believe the positives of the deal derive from RB's excellent track record for acquiring/integrating business (whether improving margins, or reducing working capital and increasing cash flow) and then driving growth through consumer-focused innovations," said Andrew Wood, senior research analyst at Bernstein. "And, we estimate that RB is paying a reasonable price."

However, he said investors might be concerned that RB is moving away from its core focus – health and hygiene products – and that infant milk formula sales are facing "turbulent times" in China.

"Of course, RB probably does not have as much of a competitive advantage in infant formula (competing with Nestlé and Danone) as it does in consumer healthcare (competing with pharma companies)," Wood said. "But we would still not bet against RB performing very well in this category."

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