Baby Food Deal Could Bring Reckitt Back

  • Sharnita Sanders
  • February 5, 2017
  • 0

Rakesh Kapoor, the CEO of the company Reckitt Benckiser Group Plc. hopes to turn around what could only be considered an unlucky streak. Kapoor recently invested $16.7 billion in the baby food maker Mead Johnson Nutrition Co. Although this recent investment might seem random, it’s far from it.

Just a year ago, Reckitt, who is the maker of not only French’s mustard but Lysol cleaner, struggled with sluggish revenue growth and shareholders held their breath when the company issued a $33.6 million pay package. Not only that, the company was boycotted for toxic disinfectants used in South Korea.

This new investment, the company’s biggest yet, would give Reckitt a new line of product. It would put the company right alongside names like Nestle, Danone, and even Procter & Gamble. Despite that aspect of the deal, it would give Kapoor the chance to step out of the shadow of the previous CEO Bart Becht.

Reckitt ownes companies that create a slew of products spanning from condiments to condoms. Yet the company isn’t in the clear with this new deal yet. Kapoor still has to convince investors that taking on baby food with be the right addition to the company’s ever expanding portfolio.

Even though the deal is still in the advanced stage of its negotiations, Kapoor has been on the lookout for deal of this measure for some time now. It has also been a slight suspicion that Mead Johnson would be purchased by Reckitt, but that suspicion has been tapered by the fact that it wasn’t sure if the baby food market would be the right addition to Reckitt’s list of products.

However, Reckitt has a history when it comes to jumping toward new challenges. A good example of the company’s aggressiveness was when it outbid Bayer AG for supplement company Schiff Nutrition back in 2012 for $1.4 billion.

The baby food market can only further expand the $3.7 billion revenue. Half of those earnings comes from the Asia where the company has been doing most of its business since the deflation in Russia and Brazil. Sales for the company dipped just last year.

In South Korea over 100 people were killed over toxic humidifier sanitizer that were sold by Reckitt. Kapoor formally apologized for the incident and around 300 million pounds ($376 million) was given to family of victims as compensation. Later on, the company received a fine for misrepresentation. A court claimed that Reckitt mislead consumers about its Nurofen painkillers.

Baby food would bring at least 6 percent with can only increase over the next few years. However, a good handful of shareholders rejected the idea of the company’s pay policy. Yet in order to sooth the shareholder’s idea of the deal, Reckitt needs to finalize the negotiations with Mead Johnson. It’s already a plus that Kapoor is done with brands like Durex and Nurofen which gave the company nothing but grief.

In a comment on Kapoor’s recent actions, an analyst from Sanford Bernstein, said, “There has always been the feeling that he was just following on and improving the work of his predecessors. Today’s deal is clearly his, and would set Reckitt Benckiser on a new path.”

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Sharnita is a nerd at heart with a love of all things geeky. She also has this odd obsession with collecting books of all genre, ranging from contemporary to manga. When not writing, she can be found surfing the web and battling her online shopping addiction.