Asia growth: The main reason Nestle could be keen on Mead Johnson acquisition

By Gary Scattergood

- Last updated on GMT

Reports suggest Nestle is interested in acquiring Mead Johnson.
Reports suggest Nestle is interested in acquiring Mead Johnson.
The financial press is rife with chatter that Nestle is weighing up a bid for US infant formula firm Mead Johnson.

It’s not hard to see why Nestle, the global market leader, would want to acquire its third placed rival – its all about Asian expansion.

Around half of Mead Johnson’s sales come from Asia, and as we reported in November​, it’s quarterly numbers showed that China provided one of its few positive notes.

Globally, gross sales were 2% below the prior year quarter, and net sales were 4% below the prior year quarter on a reported basis.

However, the company said: “Momentum behind new product launches in China and price increases within each segment offset competitive challenges.”

CEO Kasper Jakobsen said at the time: "We continue to make progress against our global plan. Most critically, we have made substantial progress in China. We are operating in a challenging global environment and it is now clear that our growth will occur more slowly than we had planned. In this environment, we have chosen to revise our full year guidance for both top and bottom line numbers."

However, some analysts questioned whether the China slowdown seen by the likes of Danone and Nestle in the middle of last year, were simply taking longer to filter through at Mead Johnson.

As SiG analyst Pablo Zuanic said: “We remain sidelined, and worry about one-time benefits in China in 3Q being reversed in 4Q.”

All of which means the numbers will be pored over in great detail when Mead Johnson releases its full year results on January 26.

While Nestle now appears to be the leading contender for a takeover, it's also worth remembering this time last year it was Danone that was reported to be close to making an offer, but nothing materialised.

However, ccording to StreetInsider, which broke the news of Nestle’s apparent interest, Credit Suisse is advising on the latest potential deal, and it’s believed a transaction could be announced before March.

Neither company has been prepared to comment publicly.

Despite the last year being affected by market volatility in China following the phasing in of new infant formula rules, analysts expect the laws will benefit international players in the long run.

Regulations restricting the number of brands on the market will prevent local outfits from flooding the markets with multiple SKUs, many of which are suspected of containing the same product.

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