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Reckitt Benckiser has agreed to sell its infant formula business in China to Primavera, a private equity firm, as the company seeks to end the struggle with the division that has dragged down its growth for years.
The transaction valued the sector at US$2.2 billion. The UK-based consumer products company said in a statement on Saturday that the company expects to receive approximately $1.3 billion in cash from the transaction for debt repayment and will hold an 8% stake in the division.
Its chief executive, Laxman Narasimhan, said in a statement that the transaction will help Reckitt “reinvigorate growth and create long-term value”, adding that the group is “proactive, Manage our investment portfolio decisively”.
Reckitt acquired the US infant formula group Mead Johnson for 13 billion pounds in 2017 and entered the infant formula business. This is the former CEO Rakesh Kapoor (Rakesh Kapoor) pushing the company to refocus on higher-margin consumption Part of the effort of health products. This department produces brands such as Enfamil.
However, it later encountered difficulties, partly due to the falling birth rate in China and local competition.
Last year, Reckitt assumed a £5 billion impairment when it acquired Mead Johnson, writing off nearly one-third of its previous book value.
In 2018, the company’s Dutch infant formula plant was disrupted by Reckitt’s inability to meet customer demand, reduced the company’s revenue by £70 million and hit its stock price.
Jefferies analyst Martin Deboo said in March that he believes Reckitt’s shareholders are “happy to exit [of the China baby formula business] At almost any price”.
It added that Reckitt expects that the sale to Primavera will result in a net loss of approximately £2.5 billion because it remeasures the goodwill and intangible assets of the division.
The company’s infant formula division as a whole reported that sales in the first quarter of 2021 were down 7.4% compared to the same period last year.
According to the transaction, Chunhua, which previously invested in Alibaba, Ant Group and ByteDance, will control Reckitt’s manufacturing plants in Nijmegen, the Netherlands, and Guangzhou, China.
Reckitt will still own the Mead Johnson and Enfa brands, but Primavera will have a royalty-free perpetual license to use them in China.
Narasimhan, who took over in 2019, has been seeking to reverse Reckitt’s performance, which was affected at the end of Kapoor’s term.
The company said in April that due to the soaring sales of hygiene products such as Lysol disinfectant, its similar revenue in the first quarter of this year increased by 4.1%.
Narasimhan said that Reckitt is keen to develop other businesses in China, which is the largest market for Durex condoms.
Fred Hu, founder and chairman of Primavera, said the deal will lead to a “strong cooperation” with Reckitt.
The Guangzhou-based infant formula business in China had approximately 3,000 employees in the year ended December and had net income of 861 million pounds.
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