Reckitt Benckiser Group PLC has agreed to sell its infant formula subsidiary in China to the private equity firm Chunhua Capital Group for US$2.2 billion, thereby exiting the business that has dragged down its growth for many years.
According to two press releases issued on Saturday, Primavera will acquire the Greater China division of Mead Johnson Nutrition, a US-based subsidiary of Reckitt, which produces children’s nutrition products, including its flagship infant formula Enfamil.
The company said that Reckitt will retain an 8% stake in the division and expects a net cash income of approximately US$1.3 billion.
The British consumer goods giant announced in February that it had conducted a strategic assessment of its infant formula and child nutrition business in China, stating that the company was in trouble due to cross-border trade restrictions between Hong Kong and the mainland and rising growth. Competition from domestic challengers.
Reckitt said at the time that the department was also under pressure to drop the birth rate. Like many countries, China’s number of newborns fell sharply last year, when its Covid-19 outbreak reached its peak. The country is also facing a prolonged demographic crisis driven by a persistently low birth rate.
According to data from the consulting group Euromonitor, Mead Johnson's share of China's infant formula market fell from 6.7% in 2016 to 5.1% last year. Revenue from Reckitt's global nutrition business fell by 2% last year, lagging behind the company's health and hygiene departments.
Dairy industry expert Lei Yongjun told Caixin reporters that Mead Johnson has been working hard to resist domestic competitors such as China Feihe and Junlebao Dairy in the low-end market of the Chinese market, and has so far failed to compete with well-known international companies. Brands such as Wyeth Nutrition and Danone SA are in the country's wealthier and more developed cities.
Since the Sanlu scandal in 2008, Chinese consumers have regained their trust in local infant formula brands. In the scandal, 6 babies died from drinking contaminated locally made milk and formula, and more than 50,000 were hospitalized. . These products are deliberately contaminated with the chemical melamine to increase their apparent protein content.
The deal between Reckitt and Primavera will enable the latter company to take over manufacturing facilities in the Netherlands and the southern Chinese city of Guangzhou, and to obtain exclusive and royalty-free permanent licenses for the Mead Johnson and Enfa series of brands in China.
After the transaction is completed, Reckitt will continue to own the Mead Johnson and Enfa brands globally and will operate in other parts of the world. Reckitt Benckiser acquired Mead Johnson in 2017 for $16.6 billion.
Last year, Mead Johnson's China business revenue was 861 million pounds (1.22 billion US dollars), accounting for approximately 6% of Reckitt's total revenue. Operating profit was 85 million pounds.
Laxman Narasimhan, CEO of Reckitt, stated that the transaction will bring “better and more stable growth and profit margins” to the group’s nutrition business, adding that the company remains committed to China, which is the brand’s share of Durex. The largest global market is also its main market. Dettol, Finish and VMS household product lines.
Hu Zhiming, founder and chairman of Chunhua Resources, stated that the group is "very happy to acquire the Greater China business of Mead Johnson, a long-established and well-known multinational infant nutrition brand.
"We look forward to working with Reckitt's management to continue to provide customers with the highest quality nutritional products through world-class scientific innovation and R&D capabilities, as well as the strictest safety and quality control," he added.
Contact reporter Matthew Walsh (matthewwalsh@caixin.com) and editor Flynn Murphy (flynnmurphy@caixin.com)
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