My sample
Diversification; For Value Creation
Acquisition of Illinois-based Mead Johnson, maker of Enfamil baby formula, by the health and hygiene giant Reckitt Benckiser has been the smartest strategic manoeuvre. Now this London headquartered consumer giant, Reckitt Benckiser will approach mothers not only through its hygiene programs or pain relief Nurofen brands but Mead Johnson’s infant formula will strengthen this bond further. Mead Johnson has about 70 products on shelves of 50 countries. It is world leader in the infant formula and children’s nutritional line with a staggering sale of approximately $46 billion annually which Reckitt Benckiser experts’ claim will increase 3-5% per year. This growth will multiply largely because Mead Johnson draws its 50% profits from Asian countries. China being the largest has revised its One-child policy which means demand will increase. Some other factors will be urban shift, economic prosperity and increased awareness of quality nutritional products. One of the factors will be mothers going out for work leaving child at infant formula. No doubt there are other brands too like Vevey, Switzerland’s Nestle and Paris-based Danone. A product safety scare in China and bribe allegations also made it a ripe choice for acquisition vultures to set eyes on it. Danone shareholders expressed keen interest for a merger which did not take place. For quite some time the speculations were that Danone with its 9% share and Nestle with a slice of 19 percent will jump the bandwagon of acquisition as Mead Johnson has developed a strong customer base through its culture of research and development over a period of about a century. This level of consumer trust however is a quality well kept by Mead Johnson.
The transaction of these two giants has been unanimously approved by both the boards of directors however the shareholders still have to give their view. The makers of Power brands including Nurofen, Strepsils, Gaviscon, Mucinex, Durex, Scholl, Mortein, Finish, Vanish, Calgon, Air Wick, Woolite and French'is offering $90 share price to shareholders. The takeover has cost Reckitt Benckiser a total of $17.9 billion including a debt of $1.3 billion, as of December 31, 2016.
It had been however inevitable for quite a long time keeping in view the dwindling market value of mead Johnson this year.
Mead Johnson, a baby food giant tumbled in February 2015 because of a stoking competition by Nestle and Danone with their entry into Asian market. This cut throat competition led to the shedding of a few bucks in prices, but even that did not sustain the dwindling stock and ultimately a sharp decrease of 26 percent brought the suitors home. Reckitt Benckiser has reaped the best of the both opportunities with its entry into baby food market after its 2012 purchase of Schiff Nutrition; an Omega-3 supplement and joint painkiller producer.
The acquisition is a glaring example of Reckitt Benckiser’s diversification strategy for creation of value for its customers. Rakesh Kapoor CEO of Reckitt Benckiser pledged that this consumer centric merger will provide significant growth for the portfolios of both the companies.