Durex owner Reckitt Benckiser will buy a US baby formula maker for $16.6bn

Courtney Goldsmith
Follow Courtney
Mead Johnson's Enfa brand is the world's top infant and child nutrition franchise
Mead Johnson's Enfa brand is the world's top infant and child nutrition franchise (Source: Getty)

Reckitt Benckiser (RB) is set to buy US baby formula maker Mead Johnson for $16.6bn (£13.3) in cash.

The British company behind such names as Lysol cleaners and Durex condoms said it will pay $90 a share for the American firm.

The acquisition will open up a new market area for RB, who called the move a "significant step forward" in its push to become a bigger consumer health player, and it will strengthen its presence in developing markets, including China.

Read more: Here's how analysts reacted to Reckitt Benckiser's talks with Mead Johnson

Mead's Enfa brand is the global leader of the infant and children's nutrition category.

Rakesh Kapoor, chief executive of RB, said with the addition of the Enfa franchise RB "will continue to deliver for shareholders and on our strategy to make a difference by giving people innovative solutions for healthier lives and happier homes".

Shares rose 1.7 per cent at 7,362p in morning trading.

RB, which revealed it was in talks to buy the company last week, said its goal is for Mead to perform at the upper end of estimated category growth of three to five per cent per year in the medium to long term.

It estimated £200m in annual cost savings by the end of the third full year. The deal will add to earnings in the first full year and is set to add a double-digit percentage rate to earnings by the third year, RB said.

Last week, analysts said investors might be concerned about RB's move away from its core focus of 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)," Andrew Wood, senior research analyst at Bernstein said. "But we would still not bet against RB performing very well in this category."

RB also reported fourth-quarter revenue was up one per cent like for like to £2.76bn, while full-year revenue rose three per cent. Reported earnings for the full year were up six per cent at 256.5p.

Related articles