Reckitt to sell baby formula biz in China

British consumer goods company Reckitt Benckiser Group Plc has agreed to sell its baby formula business in China to private equity group Primavera Capital Group for $2.2 billion as the company seeks to exit from China's infant formula sector.

Reckitt will retain an 8 percent stake in the infant formula and child nutrition business unit and expects net cash proceeds of about $1.3 billion.

The transaction is structured as a sale of the entirety of IFCN China, including the manufacturing plants in Nijmegen, the Netherlands, and Guangzhou, Guangdong province. It includes a royalty-free perpetual and exclusive license of the Mead Johnson and Enfa family of brands (including Enfinitas, Enfamil and Enfagrow) in China. Reckitt's infant formula business in the Chinese market accounts for 6 percent of its group sales, which rose by 11.8 percent on a yearly basis last year, according to Reuters.

Following completion of the transaction, Reckitt will continue to own the Mead Johnson and Enfa family of brands globally and will run these brands in the rest of the world. The deal is expected to be completed in the second half of this year.

Mead Johnson was acquired by Reckitt in 2017 for $16.6 billion. The Chinese maternity and infant product market was on a high then after the introduction of the second-child policy.

However, Mead Johnson did not see good growth despite the strong market momentum.

According to Euromonitor International, Enfamil, a leading brand of Reckitt, has seen its market value drop from 4.6 in 2018 to 4.0 in 2019.

Zhu Danpeng, a food and beverage analyst, said Mead Johnson's strong research and development capabilities will be further enhanced by supply chains from the dairy businesses owned by Primavera and help it gain better branding power and market share in China.

In 2019, investors including Ping An Capital, Primavera Capital, and Junqian Management agreed to acquire a 51 percent stake in China-based dairy products producer Junlebao from parent company China Mengniu Dairy.

Junlebao, which operates 17 production plants and 10 ranches, primarily produces milk powder, low-temperature yogurt, and milk.

Primavera founder and chairman Fred Hu said: "We have considerable experience investing and growing and expanding global brands in China. We are excited to support the business in its next phase of growth, leveraging our resources and local leadership."

Reckitt CEO Laxman Narasimhan said the company remains committed to China with its hygiene, health and vitamins, minerals and supplements portfolios. "We are excited about the opportunities to grow our brands and expand our business in the future," he said.

"China is Durex's largest market and growing strongly and it is also an important market for Dettol, Finish and our other brands with significant potential for future expansion."