Mead Johnson (MJN) Could Be Subject of Major Takeover Bid
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Mead Johnson Nutrition Company (NYSE: MJN) may be the target of a large acquisition, reports have said today.
The potential suitor? Nestle SA. According to Bloomberg, Nestle is shifting its strategy after about $11.4 billion in common stock repurchases failed to spur investors into "buying" mode.
In acquiring Mead Johnson, Nestle will bolster its infant formula offerings, potentially expanding its market share in China, which is the only market Nestle isn't the biggest seller of formula. In 2005, Chinese authorities found that two varieties of Nestle's infant formula, Neslac milk powder, contained too much iodine, turning off potential customers.
Last year, Mead Johnson held an 11.7 percent share of China's infant formula market, compared with second-place Danone at 9.8 percent. Nestle didn't hold a spot in the top-five, according to Euromonitor data, but it's sales in China are expected to increase threefold through 2015.
One analyst from Fifth Third agreed, saying China is powering the potential acquisition, and infant formula is one of those things where brand matters.
Of course, both companies have a significant presence in the U.S. A combination would put both at a 58 percent market share, and allow Nestle to market its Gerber baby food to customers who already use Mead Johnson's Enfamil formula.
Estimate have Nestle needing to offer something of a 25 percent premium in order to open up discussion, or about $18.5 billion. Investors looking at EBITDA might think that's overpaying for Mean Johnson, but, as one analyst put, if you're a consumer products company and you want to access growth, Mead Johnson will do that for you.
Mead shares are up 2.7 percent Wednesday morning.
The potential suitor? Nestle SA. According to Bloomberg, Nestle is shifting its strategy after about $11.4 billion in common stock repurchases failed to spur investors into "buying" mode.
In acquiring Mead Johnson, Nestle will bolster its infant formula offerings, potentially expanding its market share in China, which is the only market Nestle isn't the biggest seller of formula. In 2005, Chinese authorities found that two varieties of Nestle's infant formula, Neslac milk powder, contained too much iodine, turning off potential customers.
Last year, Mead Johnson held an 11.7 percent share of China's infant formula market, compared with second-place Danone at 9.8 percent. Nestle didn't hold a spot in the top-five, according to Euromonitor data, but it's sales in China are expected to increase threefold through 2015.
One analyst from Fifth Third agreed, saying China is powering the potential acquisition, and infant formula is one of those things where brand matters.
Of course, both companies have a significant presence in the U.S. A combination would put both at a 58 percent market share, and allow Nestle to market its Gerber baby food to customers who already use Mead Johnson's Enfamil formula.
Estimate have Nestle needing to offer something of a 25 percent premium in order to open up discussion, or about $18.5 billion. Investors looking at EBITDA might think that's overpaying for Mean Johnson, but, as one analyst put, if you're a consumer products company and you want to access growth, Mead Johnson will do that for you.
Mead shares are up 2.7 percent Wednesday morning.
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