It’s the latest push by the UK consumer giant, whose brands include Nurofen and Durex, to build on its faster growing consumer-health business and bolster its presence in Asian markets.
The companies are discussing an offer of $90 a share in cash, Reckitt Benckiser said late Wednesday. That’s 29 per cent higher than Mead Johnson’s closing stock price.
Reckitt Benckiser, based in Slough, England, would finance its biggest-ever deal with cash and debt.
Mead Johnson confirmed the discussions in a separate statement, and both companies said there is no certainty that any transaction will ultimately be agreed on.
Speculation that Nestle or French yogurt maker Danone could bid for Mead Johnson has been rife since the company went public in 2009, and talk resurfaced last month that the Swiss food company was considering an offer.
Reckitt Benckiser is striking as Danone is busy trying to complete its $10bn acquisition of organic food manufacturer WhiteWave Foods Co.
Nestle, whose new chief executive officer started last month, would face too many antitrust obstacles in such a transaction, analysts at RBC Europe have said.
“Reckitt’s portfolio exposure to health, hygiene and home products presents a much cleaner takeout scenario when compared to antitrust issues which may otherwise arise in the case of a bid by a pure competitor to Mead,” wrote John Baumgartner, an analyst at Wells Fargo.
He said the offer price values Mead at 17 times earnings compared with multiples of 20 that Nestle paid for Pfizer’s baby formula unit and 22 that Danone paid for baby-food maker Numico in 2007.
Mead Johnson soared 24 per cent to $86 in after-hours trading in the US.
The acquisition would let Reckitt Benckiser add formula to a portfolio of consumer brands that includes Lysol cleaning products.
CEO Rakesh Kapoor has held off on big deals in the past few years, though he’s always been on the lookout, after telling Bloomberg News late in 2015 that he could be interested in Pfizer Inc.’s consumer-health unit.
Kapoor has turned more to over-the-counter health products, with brands such as Mucinex and Scholl, for growth, with the home and personal-care divisions expanding more slowly.
Hygiene represents about 40 percent of Reckitt Benckiser’s sales, compared with 33 percent for health, according to Bloomberg Intelligence.
More recently, the company has been grappling with slowing growth in emerging markets and fallout from the sale of toxic disinfectant products in South Korea.
Shares of Glenview, Illinois-based Mead Johnson had fallen about 34 per cent from their 2015 peak, hurt in part by a resurgence in interest in breastfeeding in countries such as China.
With a 10 percent share of the baby-food market, the company trails Nestle and Danone globally, though it’s second only to Nestle in Asia, the biggest market, according to Bloomberg Intelligence.
Baby food will likely be one of Asia’s fastest-growing food categories, even as the industry contends with near-term headwinds, Bloomberg Intelligence noted in December.
The category’s growth in China might be hurt by smaller baby-food makers slashing prices over the coming year, according to the note.
Over the long term, China’s two-child policy will increase spending on formula while demand in Southeast Asian countries including Indonesia and Vietnam will also likely climb as more women enter the workforce, according to Bloomberg Intelligence.