Reckitt Benckiser will incur a net loss of £2.5bn on the sale of its baby formula business in China to private equity group Primavera Capital Group.
The consumer goods maker said taking into account all costs, including goodwill, it will lose £2.5bn with the sale.
Reckitt is selling its infant formula and child nutrition (IFCN) business in China for $2.2bn.
The Lysol disinfectant and Dettol soap maker will retain an eight per cent stake in the IFCN China unit and anticipates net cash proceeds from the sale to be about $1.3bn.
The sale closes a strategic review of IFCN China launched in February as a result of sluggish sales caused by intense competition from local Chinese baby formula brands and slowing birth rates in China.
Reckitt executives have also attributed Hong Kong border closures during the Covid-19 pandemic as weighing on the business, which it acquired as part of its $16.6bn purchase of US-based Mead Johnson in 2017.
Reckitt CEO Laxman Narasimhan said: “Today’s announcement marks another step in our strategy to rejuvenate growth and create long term value. As part of this journey, we are actively, and decisively, managing our portfolio.”
Reckitt’s Greater China infant formula business represents 6 per cent of group sales, which were almost £14bn in 2020, up 11.8 per cent year-on-year.
The deal includes the sale of its manufacturing plants at Nijmegen in the Netherlands, and in Guangzhou, China, and a royalty-free perpetual and exclusive license of the Mead Johnson and Enfa family of brands in China.
After the deal’s close, expected in the second half of 2021, Reckitt will own and operate the Mead Johnson and the Enfinitas, Enfamil and Enfagrow brands in the rest of the world.