Mead Johnson-Reckitt Move To Merge, Deal Closes On Jun 15

Mead Johnson Nutrition Company (NYSE:MJN) , the Enfamil infant formula-maker is fast moving toward concluding the agreement of acquisition with renowned British consumer-products maker, Reckitt Benckiser Group. Post clearance of the final regulatory hurdle, the company announced Jun15 as the closing date for this mega $16.7 billion deal.

This news follows Mead Johnson’s announcement that both companies’ stockholders have approved the impending merger earlier this month.

The total transaction value of the deal had previously been fixed at $17.9 billion including Mead Johnson’s net debt of $1.2 billion as of Dec 31, 2016. This represents $90 per share of company’s common stock which is equivalent to 29% premium to its closing share price on Feb 1, before market speculation of a potential contract was rife.

Reckitt Benckiser incidentally plans to add Mead Johnson’s global brands Enfamil and Nutramigen as a new division within the company’s portfolio.

Both companies expect the deal to be strategic fit. Successful completion of this integration will lead to medium to long-term growth of 3–5% in global infant and children’s nutrition category of Mead Johnson, which is currently worth approximately $46 billion in annual sales.

After an initial transitional period, Reckitt Benckiser expects to perform progressively toward achieving the upper end of this estimated range.

Reckitt Benckiser’s multi-geography supply chain infrastructure and distribution network should enhance Mead Johnson’s go-to-market capabilities. This apart, it would accelerate Mead Johnson’s entry into new emerging geographies where Reckitt Benckiser already has a deep and existing understanding of the local consumer health dynamics.

From financial perspective, the consolidation is expected to be accretive to adjusted earnings per share of Reckitt Benckiser in first full-year and double-digit accretive by the third year. Additionally, there will be 200 million pounds of annual cost savings.

Zacks Rank & Key Picks

With limited upside potential, Mead Johnson currently carries a Zacks Rank #4 (Sell). Few better-ranked medical stocks are Align Technology, Inc. (NASDAQ:ALGN) , Inogen, Inc. (NASDAQ:INGN) and Accelerate Diagnostics, Inc. (NASDAQ:AXDX) . Align Technologyand Inogen sport a Zacks Rank #1 (Strong Buy), while Accelerate Diagnostics carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Align Technologyhas an expected long-term adjusted earnings growth of almost 24.1%. The stock has added roughly 37.9% over last three months.

Inogen has a long-term expected earnings growth rate of 17.5%. The stock has a solid one-year return of around 84.7%.

Accelerate Diagnostics has an expected long-term adjusted earnings growth of 30%. The stock has roughly added 15.9% over last three months.

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