Reckitt Benckiser to acquire Mead Johnson for $16.6bn

BY Richard Summerfield

The world’s leading consumer health and hygiene firm, Reckitt Benckiser Group plc, has announced that it is to acquire Mead Johnson Nutrition Company for around $16.6bn, though the total value of the deal, including the target's existing debt, will be around $17.9bn.

Mead's shareholders will receive $90 cash per share held, a premium of 9 percent to the company's closing price of $69.50 on 1 February 2017, the day before speculation of a possible deal first emerged, and 24 percent up on its 30-day volume-weighted average price of $72.37.

In a statement announcing the deal Rakesh Kapoor, Reckitt's chief executive, said: “The acquisition of Mead Johnson is a significant step forward in RB’s journey as a leader in consumer health. With the Enfa family of brands, the world’s leading franchise in infant and children’s nutrition, we will provide families with vital nutritional support. This is a natural extension to RB’s consumer health portfolio of Powerbrands which are already trusted by millions of mothers, reinforcing the importance of health and hygiene for their families.”

According to the firms, the newly combined company will generate around 40 percent of its sales in developing markets. China will be the firm’s second-largest market after the US. The takeover will add to Reckitt's earnings within a year of the deal completing and the deal will generate $250m of cost savings after three years.

James Cornelius, chairman of Mead's board of directors, said: “The agreement being announced today is about value creation. First and foremost, this transaction provides tremendous value to Mead Johnson Nutrition stockholders. Additionally, relative to the future growth and development of the Mead Johnson business, Reckitt Benckiser – with its strong financial base, broad global footprint, consumer branding expertise and dynamic business model – is an ideal partner.”

Reckitt has confirmed that the deal will be funded through a combination of cash and new debt. To complete the deal, the company will take out a bridging loan of $8bn to cover the cash consideration and issue $9bn of new debt in the form of three- to five-year-term loans.

The two companies have also noted that the deal will include a $480m break-fee if either company walks away, subject to certain conditions.

News: Reckitt Benckiser to buy Mead Johnson

Automotive industry faces crunch as production set to nosedive in Western Europe, survey reveals

BY James Williams

Automotive production in Western Europe will be less than 5 percent by 2030, according to KPMG’s ‘Global Automotive Executive Survey 2017’ – its annual state of play analysis of the industry.

Following the UK’s decision to leave the European Union (EU), 65 percent of automotive executives believe that the EU as it is today “will be history in 2025”. This scenario would not only jeopardise the free trade zone within the EU, but also “disruptively affect the automotive industry worldwide”.

Now in its 18th year, the study assesses the current state and future prospects of the worldwide automotive industry, gathering the opinions of almost 1000 executives from 42 different companies.

Respondents believe that the end of the EU would trigger an automotive production shortage in Western European countries by 2030 – in addition to the globalisation and development of China’s sales market – which would see car production fall from 13.1 million to 5.4 million within 13 years.

The survey states: “Not only will macroeconomic risks and geopolitical turmoil have a significant impact on the automotive sector in Western Europe, the emergence of China as the most important automotive sales market will also lead to dramatic dependencies for some auto manufacturers in the region”.

Furthermore, 76 percent of executives agree that China will dominate more than 40 percent of its global share of vehicle sales by 2030, and will continue to keep its “pole position as world leader for sales in the automotive industry”.

It is also estimated that China would need to sell a total of 43 million vehicles to reach its predicted figure. Over 56 percent of global executives believe that the country is a “high growth market for traditional and mass volume manufacturers”.

The survey notes that “China is absolutely seen by executives as a high growth market primarily for mass and volume manufacturers as well as for premium manufacturers. This leads to the conclusion that innovations will be developed for China but not necessarily by Chinese players”.

Overall, the effect of Brexit could prove to be more damaging to Western Europe than first thought. The threat of a depleted EU could see British automotive trade diminish.

Report: ‘Global Automotive Executive Survey 2017’

Digital disruption driving deals

BY Richard Summerfield

2017 is likely to see increased mergers and acquisitions (M&A) activity in the media and entertainment (M&E) sector, according to EY’s latest Media & Entertainment Capital Confidence Barometer, released earlier this week.

Much of the dealmaking activity in the M&E space in the coming year will be likely be driven, in part, by digital disruption and convergence. The emergence of digital disruption and sector blurring in particular has proved a key driver of recent dealmaking in the M&E space, with 31 percent of the executives surveyed by EY citing convergence as the biggest disrupter in the industry of late. Increasingly, companies are expanding into previously uncharted territory. Sixty-seven percent saw digital disruption as the main catalyst for deal aking in the coming year.

In a statement announcing the report, John Harrison, EY's Global Media & Entertainment Leader, Transaction Advisory Services, said, “Unprecedented, unrelenting advances in technology and the swift emergence of new platforms and services are driving change in consumer behaviours, upending long-standing media ecosystems and blurring sector lines. Companies are aggressively seeking the innovation needed to position for future success and are looking to acquisitions, alliances and joint ventures to catalyse transformation.”

Despite the political and economic uncertainty permeating the globe, there is an underlying confidence in the M&E industry, particularly when it comes to dealmaking. In spite of persistent macroeconomic challenges, 73 percent of respondents perceived the global economy as stable or improving.

From a dealmaking perspective, 85 percent of respondents expressed confidence in the quality of acquisition opportunities available to M&E companies in the year to come. Furthermore, 94 percent of respondents claimed they had stable to positive confidence in the likelihood of closing a deal in 2017. More than half of respondents (56 percent) claimed that they expect their company to actively pursue an acquisition in the next 12 months, up from 46 percent in July 2016. Forty-eight percent said they have five or more deals in the pipeline.

Cross-border dealmaking is likely to be particularly prevalent in 2017, with 42 percent of executives claiming that their companies will be targeting a cross-border acquisition in the coming year. The US, France, the UK, Germany and China are the top five most likely destinations. The UK was the most sought after investment destination in EY’s previous report.

Report: Media & Entertainment Capital Confidence Barometer

Global growth bolstered by US

BY Richard Summerfield

Donald’s Trump ascent to the presidency in the US caught many off guard, and though a number of the president-elect’s policies caused concern during the bruising race to the White House, his planned tax cuts and public spending increases will see global growth pick up faster than previously expected in the coming months, according to the Organisation for Economic Co-operation and Development’s (OECD) twice yearly Economic Outlook.

The OECD’s outlook suggests that the US is expected to be the best performing large advanced economy in 2017, growing 2.3 percent, with the eurozone growing 1.6 percent, and the UK just 1.2 percent. Only 1 percent growth is predicted in Japan. Furthermore, US growth is forecast to improve to 3 percent in 2018, the highest rate since 2005, as tax cuts on businesses and households come into effect and the administration’s infrastructure investment programme begins in earnest.

During his presidential campaign, Mr Trump pledged to boost infrastructure investment in the US by as much as $1 trillion. Though the new administration’s willingness to invest in infrastructure development has won the approval of the Paris-based think-tank, the OECD has distanced itself from another of Mr Trump’s often repeated policy positions: withdrawing from international trade agreements. It is these agreements, the OECD argues, that will help return strong growth to the global economy.

Fiscal initiatives, though, will play a key role in delivering greater global growth. “The global economy has the prospect of modestly higher growth, after five years of disappointingly weak outcomes,” said OECD secretary-general Angel Gurría, while launching the Outlook. “In light of the current context of low interest rates, policymakers have a unique window of opportunity to make more active use of fiscal levers to boost growth and reduce inequality without compromising debt levels. We urge them to do so.”

An extraordinarily accommodating monetary policy, will, according to the OECD, be the primary means by which the global economy will be boosted, although the think-tanks’s endorsement does not provide governments with a “blank cheque”, said Mr Gurria. Amid persistently low interest rates, policymakers have the opportunity to boost growth by utilising expansionary fiscal initiatives. According to the OECD, fiscal measures such as “high-quality infrastructure investment, innovation, education and skills” may lead to higher growth by 2018.

Report: Economic Outlook

Trump wins election, markets fluctuate

BY Richard Summerfield

The political outsider, Republican Donald Trump, has claimed a historic and stunning victory in the US presidential election, bringing an end to eight years of Democratic rule. The result initially plunged the global markets into chaos and stunned Wall Street.

As Mr Trump’s supporters celebrated his victory, along with Republican successes in both the Senate and House of Representatives, the dollar and US stocks endured a mixed day, falling sharply before recovering somewhat throughout Wednesday’s trading.

European shares initially followed suit. Though many news agencies predicted losses of around 4 percent, the FTSE 100 fell around 1.4 percent initially before recovering throughout Wednesday. In the first hours of trading on Thursday morning, the FTSE continued its gains, climbing a further 1.06 percent, nearing the 7000 mark.

The Mexican peso, however, dropped 13 percent against the dollar at one point, marking the currencies biggest daily move in nearly 20 years. The peso did rebound 4 percent on Wednesday, though it was still down 8.5 percent.

Asian shares rallied in trading on Thursday with the Nikkei climbing 7 percent at one point, following of 5 percent drop in the previous day’s trading. Gains were also seen elsewhere as Australian stocks soared 3.3 percent in the largest daily gain since late 2011 . Shanghai rose 1.3 percent.

Wall Street, which had lent its considerable support to Ms Clinton during the bruising and historic election campaign, was initially left reeling by the result as investors fled some of their riskier assets. Yet US stocks actually closed up on Wednesday, with investors jumping headlong into sectors which could benefit from Mr Trump's election. Oil & gas producers, energy companies and construction firm sand pipeline operators were all seen as attractive investment destinations, given Mr Trump’s preference for oil & gas investment. The fact that the GOP has indicated that it would invest at least $500m in infrastructure development over the next five years can be seen as one of the driving forces behind these gains.

Mr Trump’s views on the Dodd-Frank reform act, implemented in the wake of the financial crisis, as well as other notable Democrat legislation including the Affordable Care Act, have also affected stocks; healthcare companies fell as the markets anticipated the end of Obamacare.

Oil markets, which have steadied in recent months following two years of uncertainty, fell temporarily below $45 a barrel on Wednesday morning, as the wider global commodities market reacted to the election result with some concern. The global benchmark, Brent Crude, fell to its lowest point since August, down 2.3 percent to $44.98. However, oil prices rebounded on Thursday; at the time of writing, Brent Crude futures were up 1.14 percent, or 53 cents, at $46.89 per barrel. Though the outlook for the commodities market still appears contentious, there is hope that a recovery in the oil & gas sector in 2017 may be relatively rapid.

News: US stocks, bond yields jump after Trump shock, Mexican peso falls