Reckitt Benckiser, maker of Nurofen painkillers and Durex condoms, is in advanced talks to acquire Mead Johnson in a deal that could value the US baby-milk group at about $16.7bn.
Reckitt said it had offered to pay $90 a share in cash for Mead, a near-30 per cent premium on its closing share price before news of the talks emerged.
“The parties are presently engaged in a period of due diligence and contract discussion,” Reckitt said.
A deal with Mead would help Reckitt, which has a market value of about $60bn, boost its US business and increase sales to emerging markets, where Reckitt is underexposed compared with European peers.
James Edwardes Jones, analyst at RBC Capital Markets, said the shift towards Mead was a surprise. “Reckitt needed something, but this was not what we had in mind and it looks expensive.”
Reckitt has been on the hunt for a big acquisition for some time, but its focus has been on consumer healthcare, an industry in which Rakesh Kapoor, chief executive, has said repeatedly he wanted Reckitt to act as a consolidator.
But sizeable consumer-health assets have been in short supply, or out of Reckitt’s price range. It was outbid two years ago for the consumer healthcare division of Merck by Germany’s Bayer, which paid $14.2bn.
Illinois-based Mead, which owns baby-milk brands including Enfamil and Nutramigen, derives most of its revenues from Asia and the US. It is the world’s second-largest company in infant formula, with a 14 per cent share of the market, but has had a tough time recently in the US and in some emerging markets, such as the Philippines.
Shares in Meadjumped 22 per cent yesterday to $84.63. Reckitt closed 4.1 per cent higher at £71.09.
David Driscoll, analyst at Citigroup, said Reckitt’s approach “seems very opportunistic, in our view”, adding that the $90-a-share offer “doesn’t seem all that great, given that Mead’s stock was at $92 a share just back in July of 2016”.
Reckitt said it planned to finance the transaction through a combination of cash and debt, “while retaining a strong investment grade credit rating”.
It stressed there was no certainty a deal would be agreed, but people close to the companies said they were “very close”.
