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

Tesco’s Booker prize

BY Richard Summerfield

British supermarket chain Tesco PLC has announced that it is to acquire food wholesaler Booker Group plc in a deal worth around £3.7bn.

Under the terms of the merger, Booker shareholders will receive 0.861 new Tesco shares and 42.6 pence in cash for each Booker share held. Based on Tesco's closing share price of 189 pence on Thursday 26 January, the day before the deal was announced, the deal represents a value of 205.3 pence per Booker share – a premium of about 12 percent.

Booker stakeholders will control around 16 percent of the newly merged company once the deal has been completed. The companies believe that the merger will create synergies of at least £200m in the first three years. Though implementation costs could be around £145m, the savings will likely come from procurement, distribution and central functions. The deal will boost earnings per share in the second full year of the deal, the companies said in a statement.

Booker, a cash and carry wholesaler which supplies food to 120,000 independent retailers nationwide, as well as owning the Londis, Budgens and Premier brands, will provide Tesco with an entrance into the food service industry. Booker also supplies a number of high-street restaurant chains and pubs.

The deal and subsequent transition into the catering sector is the latest step in Tesco’s remarkable turnaround. Just two years ago Tesco was in the midst of an accounting scandal and experiencing a declining share of the UK’s grocery market. Today, however, the company is on a much firmer footing.

Dave Lewis, Tesco’s chief executive said: “Tesco has made significant progress in turning around our UK retail business. This merger with Booker will further enhance Tesco’s growth prospects by creating the UK’s leading food business with combined expertise in retail, wholesale, supply chain and digital. Wherever food is prepared and eaten – ‘in home’ or ‘out of home’ – we will meet this opportunity with the widest choice and best service available.”

Charles Wilson, chief executive of Booker, said: “Booker is committed to improving choice, prices and service for the independent retailers, caterers and small businesses that we are proud to serve. We believe that joining forces with Tesco offers the potential to bring major benefits to end consumers, our customers, suppliers, colleagues and shareholders.”

Tesco has heralded the advantages of the deal, claiming that the tie-up will grant suppliers access to additional customers. The firm also believes that independent retailers will be given more choice. Tesco will gain exposure to around 120,000 independent retailers, 107,000 small businesses and 450,000 caterers by absorbing Booker.

But given the size and scale of the new company, there is an expectation that the UK Competition and Markets Authority will place the deal under intense scrutiny. The takeover, should it go ahead, would create the UK’s biggest wholesale and retail food business, with combined annual sales of more than £60bn. Tesco currently enjoys a 28 percent share of the UK grocery market.

News: Resurgent Tesco surprises with $4.6 billion swoop for wholesaler Booker

Cisco to acquire AppDynamics for $3.7bn

BY Richard Summerfield

Cisco Systems Inc. has announced that it is to acquire software startup AppDynamics in a deal worth $3.7bn.

The deal, which is expected to close before April, came on the eve of AppDynamics’ planned public offering. The IPO, due to be launched on Wednesday, would have been the first major tech offering of 2017. AppDynamics had intended to launch its IPO in December 2016; however the company decided to delay its offering due to uncertainty over the US presidential election.

The $3.7bn price dwarfs the $1.72bn market value that AppDynamics was seeking via IPO. Cisco agreed to pay around $26 a share, well above the company’s original price range of $10 to $12 a share.

Cisco, which has been synonymous with computer networks and hardware, has become increasingly focused on software under the leadership of CEO Chuck Robbins. The company is pivoting toward new business lines, including the Internet of Things, and has begun to make acquisitions in the space. In 2016 Cisco acquired Internet of Things platform maker Jasper Technologies for $1.4bn.

“Applications have become the lifeblood of a company's success. Keeping those apps running and performing well has never been more important. Unfortunately, that job has only gotten harder, as IT departments and developers struggle with a tangled web of disconnected, complex data that's hard to understand," said Rowan Trollope, Cisco senior vice president and general manager of Cisco's Internet of Things and Applications Business Group. "The combination of Cisco and AppDynamics will allow us to provide end to end visibility and intelligence from the network through to the application; which, combined with security and scale, and help IT to drive a new level of business results."

AppDynamics, founded in 2008, will continue to be led by the company’s chief executive and president David Wadhwani. "AppDynamics is empowering companies to build and successfully run the applications they need to compete in today's digital world," said Mr Wadhwani. "With digital transformation, companies must re-define their relationships with customers through software. We're excited to join Cisco, as it will enable us to help more companies around the globe."

News: Cisco Pays $3.7 Billion for Software Maker AppDynamics

BAT smokes out mega $49.4bn deal to acquire Reynolds

BY Fraser Tennant

A mega deal which creates the world's biggest listed tobacco company, British American Tobacco (BAT), has agreed a $49.4bn deal to acquire its US rival, Reynolds American Inc.

Under the terms of the agreement, Reynolds shareholders will receive for each Reynolds share $29.44 in cash and 0.5260 BAT ordinary shares, represented by BAT American Depository Receipts (ADRs). The cash component of the transaction will be financed by a combination of existing cash resources, new bank credit lines and the issuance of new bonds.

Shareholders in Reynolds since 2004, BAT will acquire the 57.8 percent of Reynolds it does not already own.

“BAT has consistently executed a winning strategy and has a proven track record of delivering strong results and returns for its shareholders while successfully investing for future growth,” said BAT’s chief executive, Nicandro Durante. “Our combination with Reynolds will benefit from utilising the best talent from both organisations. It will create a stronger, global tobacco and NGP business with direct access for our products across the most attractive markets in the world.” 

With a strong track record of successfully integrating acquisitions, BAT is committed to Reynolds American’s US workforce and manufacturing facilities. Moreover, the combined business will be the only truly global company in the fast growing Next Generation Products (NGP) category, with a unique opportunity to leverage scale and insights across the largest and fastest growing NGP markets and categories.

The BAT/Reynolds transaction will see leading brands such as Dunhill, Kent, Lucky Strike, Pall Mall, Rothmans, Newport and Natural American Spirit under common ownership, with direct access to the most attractive markets in the world. 

“We look forward to bringing together the two companies’ highly complementary cultures and shared commitment to innovation and transformation in our industry,” said Debra A. Crew, Reynolds American’s president and chief executive. “BAT is the best partner for Reynolds American’s next phase of growth, and together the two companies will create the leading portfolio of tobacco and next generation products for adult tobacco consumers.”

Unanimously approved by the Transaction Committee of independent Reynolds directors established to evaluate the BAT offer, as well as the boards of BAT and Reynolds, the transaction is expected to close during the third quarter of 2017.  

Mr Durante concluded: “We believe this transaction will drive continued, sustainable profit growth and returns for shareholders long into the future."

News: BAT agrees to buy Reynolds for $49 billion

Luxottica and Essilor agree $49bn merger

BY Richard Summerfield

Following years of speculation, eyewear brands Luxottica and Essilor have announced that they are to merge in an all stock deal worth $49bn, a move which will create a global superpower in the industry.

The new company is expected to have more than 140,000 employees and sales in more than 150 countries, once the deal has been completed. The companies expect the transaction to close in the second half of 2017, subject to regulatory and shareholder approval.

Under the terms of the merger, the newly combined giant will be known as EssilorLuxottica and will be led by Leonardo Del Vecchio, executive chairman of Luxottica Group.

Luxottica, which owns the Oakley and Ray-Ban brands, currently has a 14 percent market share of the eyewear industry, while Essilor has 13 percent. Around half of the combined company’s revenue is expected to be generated in the US. Europe will account for roughly 22 percent, Africa, Asia and the Middle East for around 18 percent.

In a statement announcing the deal, Hubert Sagnières, chairman and chief executive of Essilor, stated: “Our project has one simple motivation: to better respond to the needs of an immense global population in vision correction and vision protection by bringing together two great companies, one dedicated to lenses and the other to frames. With extraordinary success, Luxottica has built prestigious brands, backed by an industry state-of-the-art supply chain and distribution network. Essilor brings 168 years of innovation and industrial excellence in the design, manufacturing and distribution of ophthalmic and sun lenses. By joining forces today, these two international players can now accelerate their global expansion to the benefit of customers, employees and shareholders as well as the industry as a whole."

Mr Del Vecchio said: “With this agreement my dream to create a major global player in the eyewear industry, fully integrated and excellent in all its parts, comes finally true. It was some time now that we knew that this was the right solution but only today are there the right conditions to make it possible. The marriage between two key companies in their sectors will bring great benefits to the market, for employees and mainly for all our consumers. Finally, after 50 years, two products which are naturally complementary, namely frames and lenses, will be designed, manufactured and distributed under the same roof."

News: Luxottica and Essilor in 46 billion euro merger to create eyewear giant