Euromonitor suggests the transaction could ultimately lead to a spinoff of its home care and packaged food brands. Why? It’s not so clear, but it seems that by acquiring Mead Johnson, Reckitt may be committing itself towards a more consumer health focus. In fact, the deal will immediately double its business in this segment and considerably expand that group’s presence in the developing markets. The logic then follows that as part of that new commitment, it should spin off these now non-core parts of its business:
If Mead Johnson’s acquisition goes through, it could become a catalyst for Reckitt Benckiser to spin off its home care brands, some of which it has owned for more than 100 years, and build a more “fit” oriented business focusing on potentially more lucrative consumer health and hygiene businesses.
Does Home Care fit today? I don’t know, but Reckitt has seemed quite comfortable owning a range of strong brands in everything from condoms to mustard for a long time. Their strength appears to be in managing strong brands so Enfamil could just be another, albeit pricey, addition to the stable. Perhaps recognizing that possibility, the piece hedges itself quite nicely by noting that Reckitt may instead opt to sell the brands or maybe form a JV and keep some ownership or just decide to keep everything in house after all. Where is the Reverse Morris Trust scenario combining the sale and spinoff?!? That omission must have been an oversight…
At least we know Reckitt is familiar and open to pursuing spinoffs. The company spun off its pharma/Suboxone business, Indivior plc (INVVY), back in 2014 and the new company has performed quite well since obtaining its independence. If the company does choose to spin off some brands, hopefully it will have similar performance or at least the same success as its target in this acquisition.The deal is expected to close sometime during Q3 this year.
Disclosure: Author holds no position in any stock mentioned
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