Reckitt Benckiser has signed a deal to sell its Infant Formula and Child Nutrition business in Greater China (including mainland China, Hong Kong, and Taiwan), for $2.2 billion (about 14 billion yuan), to private equity firm Primavera Capital, as the company announced on Beijing time June 61. Reckitt will retain an 8% stake in the business and is expected to receive about $1.3 billion net cash proceeds.
According to the announcement, Mead Johnson's Infant Formula and Child Nutrition business in Greater China, sold by Reckitt Benckiser, includes 1). the production facilities in Nijmegen, the Netherlands, and Guangzhou, China; 2). a royalty-free perpetual and exclusive license for the Mead Johnson and Enfa family brands in China.
Following the transaction completion, Primavera Capital exclusively owns all the trademarks and rights of Mead Johnson in Greater China, while Reckitt Benckiser exits the Chinese infant milk powder market. Reckitt Benckiser will continue to own the Mead Johnson and Enfa family brands globally and operate those brands in the rest of the world. Besides, it will remain committed to the Hygiene, Health, and VMS (Vitamins, Minerals, and Supplements) portfolios in China.
The transaction is expected to complete in the second half of 2021.
Reckitt Benckiser: there are challenges in China’s infant formula market
U.S. infant formula maker Mead Johnson entered the Chinese market in 1993 and was acquired by Reckitt Benckiser in 2017. It operates a large number of infant milk brands in Greater China, including Enfinitas (蓝臻), Enfamil (铂睿), Enfa A (铂睿全跃), Enfagrow (安儿宝), NutriPower (学优力), Enfa Gentleease (亲舒), Enfakid (安儿健), and Enfaschool (安学健). According to Reckitt Benckiser's 2020 financial result, the Infant Formula and Child Nutrition in China accounted for 25% of Reckitt's nutrition business and about 6% of group revenue.
Mead Johnson’s infant formula portfolios in ChinaThe transaction follows a comprehensive strategic review of Mead Johnson's Infant Formula and Child Nutrition business in China announced by Reckitt Benckiser in February 2021. The review was said to be part of Reckitt's plan to manage its product portfolio to pursue higher and long-term growth.
As Reckitt Benckiser figured out in its strategic review, although Mead Johnson made some progress in product innovation and e-commerce channel exploration in China, it faced structural challenges, including Hong Kong border closure, competition from local players, the changing regulatory environment, and the declining birth rates further impacted by COVID-19.
It is widely recognized that 2008-2017 was regarded as a golden decade for the development of foreign brands in China's milk powder market. According to online data2, in 2017, foreign infant formula brands accounted for nearly 80% in the first and second-tier markets. However, starting from 2018, domestic milk powder brands such as Feihe, Yili and Junlebao began to shine. Feihe became the first Chinese milk powder brand with revenue exceeding 10 billion yuan. Since then, foreign brands’ market shares have been on a downward trend. Moreover, the COVID-19 epidemic and the continuous newborn declines have dealt a further blow to foreign brands’ performance.
The latest figure shows that domestic infant formula brands have controlled 54% of the market share in 20203.
What is Mead Johnson China's future?
Primavera Capital, founded in 2010, is one of the most established and largest institutions in the private equity industry in China, with a management scale of over 100 billion yuan. It has invested in a number of notable projects, including but not limited to Yum China, Alibaba, Xiaopeng electric automobile, Bytedance, Ant Group, and Hello Inc.
While Primavera is appearing to focus on the Internet sector, among the 60-plus companies it has invested in, the consumer sector is also part of its attention. For example, Primavera is a stakeholder of Junlebao, one of China’s leading infant formula brands. In 2020, Junlebao was among the Top 5 infant formula companies in China by market share (6.9%).
Primavera Capital said the acquisition of Mead Johnson's Greater China business was an important step in its expansion in the consumer sector. In the future, Primavera Capital will leverage its resources and local leadership to support Mead Johnson's development in China from many aspects, such as business innovation, operation improvement, channel optimization, and digital transformation. It will also strengthen its positioning and growth prospects in the Chinese infant milk powder market.
With a network of local Internet giants like Alibaba and Bytedance on the one hand and the investment experience of retail and consumer sectors on the other, Primavera Capital's acquisition seems to leave vast space for Mead Johnson's future development in China, including digital marketing, integration of online and offline consumption scenarios, e-commerce empowerment, and business expansion in lower-tier cities.
Chinese dairy expert Song Liang also said that the acquisition would benefit Mead Johnson's business in China from the following aspects:
1. Primavera Capital will continue to invest in Mead Johnson for product research and development, brand building, and market expansion.
2. Mead Johnson China and Junlebao can synergize to enter the third and fourth-tier markets.
3. Primavera Capital can help enhance the management team's independent market development efficiency, improve the category structure, and expand distribution channel flexibly.
Relevant reading:
How Will New GB Standards Shape Chinese Infant Formula Market?
FY 2020 Review: Are international Infant Formula Brands Hitting Snags in the Chinese Market?
How Do International Infant Formula Players Continue to Win in China Market?
