Reckitt Kicks Off $10 Billion Infant Nutrition Business Sale

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(Bloomberg) — Blackstone Inc., Carlyle Group Inc. and KKR & Co. are among the buyout firms studying Reckitt Benckiser Group Plc’s infant nutrition business, as the British consumer goods firm pursues one of its largest-ever disposals, people with knowledge of the matter said.

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Other potential bidders include Bain Capital, CVC Capital Partners and Clayton Dubilier & Rice, according to the people, who asked not to be identified because the information is private. The unit, which sells brands including Enfamil formula, could fetch $7 billion to $10 billion, the people said.

The London-listed company recently sent out marketing materials on the business and asked for offers by late May, according to the people. The operations, which are mainly in the U.S., are likely to appeal mostly to private equity buyers, the people said.

Shares of Reckitt fell 0.7% in London trading Wednesday, giving the company a market value of about 44.2 billion pounds ($55.5 billion).

Pulling Back

A sale would complete a reversal of Reckitt’s largest purchase, the $17 billion acquisition of Mead Johnson Nutrition Co. five years ago under former Chief Executive Officer Rakesh Kapoor. His successor, Laxman Narasimhan, sold the Chinese infant formula part of that business to local buyout firm Primavera Capital for $2.2 billion last year, exiting one of its largest markets.

“Disposing of the segment stands to improve both organic sales growth and margin prospects for Reckitt in the midterm,” Diana Radu, an analyst at Morningstar Inc., wrote in a report Tuesday. “From an operational perspective, we believe the move would represent the logical next step for Reckitt.”

The mooted $10 billion price tag seems too high given the infant formula business has “materially lower growth and profitability” than the rest of Reckitt, according to Bernstein. A valuation of $6.8 billion would be “more reasonable,” Bernstein wrote in a research note.

Birth Rates

Royal Bank of Canada analysts said the business faces significant headwinds from declining birth rates across most of its largest markets. The potential $10 billion valuation also seems “optimistic” for a private equity takeout at a time when inflationary pressures have mounted and bond yields are rising, according to Deborah Aitken and Diana Gomes, analysts at Bloomberg Intelligence.

Goldman Sachs Group Inc. and JPMorgan Chase & Co. are advising Reckitt on the sale, the people said. Representatives for Reckitt, Bain, Blackstone, Carlyle, CD&R, CVC, Goldman Sachs, JPMorgan and KKR and declined to comment.

Slough, England-based Reckitt forecast in its quarterly earnings in February that profit margins would increase this year despite significant commodity cost pressures that have led rivals to warn about slowing growth.

The company said this month it had begun a process to shift ownership of its Russian business, which may include a transfer to a third party or its local employees.

(Updates with Carlyle, Bain interest starting in first paragraph)

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