UK – Reckitt Benckiser, a British multinational consumer goods company, says it is considering postponing plans to sell its infant-formula unit as it scales up production of infant-nutrition products to curb the shortage in the US market.
Bloomberg, quoting unnamed sources familiar with the situation, said the sale, reputedly worth US$7bn, has fallen victim to “chaos in the industry and worsening financing markets”.
The talks between the London-listed company and potential acquirers have stalled in recent weeks, according to Bloomberg’s report.
The report adds that Reckitt Benckiser has not yet made a final decision on whether to formally pull the sale when the structure of the sector has also come under increased scrutiny by regulators, keen to ensure that shortages do not occur in the future.
Some media outlets cited disagreement over valuation and a lack of available funding for reasons no deal has been sealed.
Last month it was reported that potential buyers had been frightened by a US shortage of infant-nutrition products caused by the closure of an Abbott Laboratories plant following a salmonella scare.
The closure happened just a month after the company said it had commenced plans to sell its remaining businesses.
The businesses encompassed the infant formula unit and some assets, which include the Enfamil brand that attracted the interest of a number of private-equity firms, including Clayton Dubilier & Rice.
The sale would have marked Reckitt’s exit from infant formula five years after buying US manufacturer Mead Johnson.
In 2021, Reckitt’s infant-formula business grew its revenue by 3% on a like-for-like basis with the US accounting for around half the revenue.
Research from GlobalData suggests Reckitt was the third-largest player in the US market, behind Abbott Laboratories and Nestlé, when measuring sales in 2020.
GlobalData’s figures gave Reckitt a market share of 25.9%, while Nestlé and Laboratories controlled 28% and 28.5% of the US infant food market.
Bruno Monteyne, an analyst covering Reckitt at investment bank AllianceBernstein, said the mooted US$10 billion valuations “seems much too high”.
Based on Monteyne’s estimates of the division’s EBITDA in 2022, that would value the assets at an EV/EBITDA multiple of 21 times, he stated.
Monteyne added that it would be well above Reckitt’s 14.8 times 2022 multiple, despite infant nutrition having materially lower growth and profitability.
The analyst was of the opinion that valuation of US$6.8bn seems more reasonable, reducing share price impact.
Last year, the company sold its infant-formula operations in China to local investment firm Primavera Capital Group but would still retain an 8% stake in the business.
The UK-based consumer-goods group said the transaction gave the assets sold “an implied enterprise value” of US$2.2bn.
The deal gave Primavera a royalty-free perpetual and exclusive license to Reckitt’s Mead Johnson and Enfa brands in China.
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