Well I never. A British company has emerged as a potential buyer for an overseas outfit, rather than as a takeover target for one taking advantage of the pound’s banana republic currency status (see Rupert Murdoch’s latest tilt at Sky for an example of that).
Reckitt Benckiser, better known as the maker of Nurofen painkillers and Durex condoms, is in talks to takeover America’s Mead Johnson for $16.7bn (£13.3bn) in cash.
Reckitt, which is valued at around £50bn, wants to get its hands on the latter’s baby milk brands including Enfamil and Nutramigen.
Mead Johnson derives most of its revenues from Asia and the US, with a smaller portion of sales coming from Latin America, and there’s some excitement about the prospects for its Encfnitas brand in China. The company’s investors, who are quite excited about the proposal, have hopes that it will improve its growth prospects. The overseas earnings are handy to have too.
Reckitt had been looking for something to add to its consumer healthcare portfolio, perhaps even Pfizer’s business in that sphere, but has found targets in its price range difficult to find (and has been outbid in the past). Hence the pivot towards Mead, which even at a 30 per cent premium isn't as pricey as it might appear (its shares were up at the $90 bid price during 2015).
What makes the deal even more significant than it might otherwise be is what it says about the UK M&A market, which is booming.
Thomson Reuters Insights says that Reckitt’s proposal brings UK companies' involvement in deals, whether as bidders or targets, to $34.9bn so far this year. That’s the best annual start since 2008.
Part of the reason is obviously the currency issues I mentioned. Sterling being weak makes British companies cheap from the perspective of overseas bidders that can use earnings or shares denominated in Dollars or Euros etc, to pay for their targets.
And it’s good news, I suppose, for the City. If this continues there will continue to be work for the diminished number of bankers who haven’t upped and left for Frankfurt, or Dublin, or Paris, after Brexit.
But is it good for the UK? Reckitt’s deal scarcely affects its home country, and it is a buyer not a seller. It is a multinational intent upon gobbling up a smaller multinational in an attempt to diversify its product range and the markets it is in.
However, even when deals involve takeovers of UK companies by others and have a demonstrable local impact, that question is only rarely asked. City types tend to look goggle eyed at anyone raising criticism of the UK's willingness to hoist for sale signs above its best companies. Politicians, even the flag waving, nationalist variety, shrug. It’s business innit.
As long as companies can get their plans past the competition authorities, which are often not as strong as you might hope, that’s all they need.
Whether that will change in the wake of Prime Minister Theresa May’s conversion to interventionism with her much vaunted industrial policy, is an open question.
