(Alliance News) - Analysts took differing stances on Reckitt Benckiser PLC's infant-nutrition business after Bloomberg reported the household goods firm was considering the future of what remains of the business.
Reckitt Benckiser is weighing options for its infant nutrition unit, including a potential sale, Bloomberg reported on Friday.
Citing people familiar with the matter, Bloomberg said Reckitt is reviewing the business globally and has been informally gauging buyer interest in the operations. The business could attract offers from private equity firms or rival baby food makers, the people said, asking not to be identified because the information is private.
Bloomberg noted the sale would complete a reversal of Reckitt's largest-ever purchase, the USD17 billion acquisition of Mead Johnson Nutrition, made five years ago under former Chief Executive Officer Rakesh Kapoor. His successor, Laxman Narasimhan, sold the Chinese infant formula business to local buyout firm Primavera Capital for USD2.2 billion last year, exiting one of its largest markets.
Following the sale of its Infant Formula operations in China, Reckitt's IFCN business, which is now the Nutrition division excluding the Vitamins/Supplements & Minerals category, accounts for 15% of group's sales, with annual revenue of GBP1.9 billion in 2021.
Around half of the unit's sales are in the US, with the rest in coming predominantly from emerging markets.
UBS analyst Guillaume Delmas said improved momentum in US IFCN puts Reckitt in a position of strength.
Delmas also noted the article suggests that Reckitt is informally gauging buyer interest in its IFCN assets but was also not ruling out keeping the business.
"North America now accounts for more than half of Reckitt's Nutrition division's revenue. In the third quarter, Reckitt's US IFCN business achieved high single digit like-for-like sales growth which, we believe, reflected the recent acceleration in category growth coupled with Reckitt's improved market share development," said Delmas.
"We expect these two positive trends to continue into 2022 and thus drive robust LFL and margin expansion. Outside of the US (which remains a duopoly with Abbott and Reckitt holding a combined market share of 85%), Reckitt IFCN unit commands several leading market share positions in Canada, Philippines, Thailand and Malaysia," added Delmas.
However, Jefferies analyst Martin Deboo cautioned against too much euphoria saying RB is the number four player, in a troubled industry, with rivals Danone SA or China's Feihe Dairy the only incumbents free of antitrust complications.
"Reckitt acquired Meed Johnson Nutrition for 17.5 times Ebitda in 2017. However since then falling birth rates and a tilting of the playing field in China have made infant formula less attractive, with incumbents like NESN and Danone seeing slowing top lines and a squeeze on margins. Bulls will argue that by exiting China to Primavera, Reckitt have dealt with the 'toxic' asset, making the (growing) stub more attractive. The counter-argument is that the business has de-scaled by a third and has left any future owner locked out of the world's biggest market, should conditions change," Deboo said.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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