Mead Johnson's Shareholders Approve Reckitt Benckiser Deal

Mead Johnson Nutrition Company (NYSE:MJN) has moved a step forward regarding its agreement to be acquired by British consumer-products maker, Reckitt Benckiser Group plc. Recently, the company announced that both companies’ stockholders have okayed the impending merger.

According to Mead Johnson, 70.3% of outstanding shares were voted in favor of the transaction which is expected to close at second-quarter 2017 end or beginning of the third quarter of 2017. Until then as promised, Mead Johnson will continue to pay its normal quarterly dividends.

Going by this line, the board of directors has recently announced a regular quarterly dividend of 41.25 cents per share for the quarter ending Jun 30, 2017. The amount will be paid on Jul 5, 2017 to shareholders of record at close of business on Jun 20, 2017.

The total transaction value of the deal had earlier been fixed at $17.9 billion which includes Mead Johnson’s net debt of $1.2 billion as of Dec 31, 2016. This represents $90 per share of the 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, which owns famous power brands Strepsils, Durex, Lysol, Dettol, etc., plans to add Mead Johnson’s global brands Enfamil and Nutramigen as a new division within the company’s portfolio.

How the Acquisition Benefits the Companies

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 will accelerate Mead Johnson’s entry into new emerging geographies where Reckitt Benckiser already has an existing and deep understanding of local consumer health dynamics.

More positive news awaits as post completion, 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

Mead Johnson currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the broader medical sector are Luminex Corporation (NASDAQ:LMNX) , Inogen, Inc. (NASDAQ:INGN) and Accelerate Diagnostics, Inc. (NASDAQ:AXDX) . Notably, Luminex and 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.

Luminex has an expected long-term adjusted earnings growth of almost 16.3%. The stock has roughly added 8.1% 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 79.7%.

Accelerate Diagnostics has an expected long-term adjusted earnings growth of 30%. The stock roughly added 7.1% over the last three months.

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