Mead Johnson Nutrition Co. (NYSE:MJN), maker of infant formula such as Enfamil brand, is reportedly in talks of a $16.7 billion buyout from Reckitt Benckiser Group (OTC:RBGL.Y). Shares are up nearly 25% as of 11 a.m. EST Thursday.
U.K.'s Reckitt Benckiser is a consumer good conglomerate with products from Lysol to Air Wick air fresheners. The company has been looking for a play further into the pharmaceutical sector, but looks like this will be its big buy instead. Reckitt Benckiser is known for its shrewd cost management in these acquired companies, which helps boost value long term. The offer of $90 cash per share of Mead Johnson is about 30% higher than Wednesday's closing price, hence Thursday's Mead Johnson stock surge.
A few months ago, Chinese baby food maker Synutra was bought out as those investors believed in the growth of the baby formula market. The deal with Mead Johnson looks to be similar, especially in China where Mead Johnson gets about a third of its total sales. This deal would pit Reckitt Benckiser directly against industry behemoths Nestlé S.A. and Groupe Danone, two of the largest volume sellers of baby formula worldwide.
Mead Johnson investors should be thrilled with the news, after seeing the stock drop around 26% since July until Thursday morning's surge. The move by Reckitt Benckiser looks well timed as even $90 per share is below where Mead Johnson's stock was in July, making this look like a deal for what could be a resurgent brand.
The market moved fast to price the shares appropriately for the potential buyout, so there's little value left to be squeezed out of them assuming the deal goes through. However, there is still the chance for competing bids, which could push that price up higher before a final deal is signed.