Analyst Note| Philip Gorham, CFA, FRM |
Reckitt has sold a majority stake in its infant nutrition business in China to private equity firm Primavera for an enterprise value of GBP 2.2 billion. Reckitt will retain 8% of the business in China and it will retain the rights to the Enfa family of brands in all other markets, although manufacturing plant in the Netherlands is included in the asset sale. The transaction is not a surprise as management had previously indicated they were reviewing strategic options for the business in China, which has failed to live up to expectations since the acquisition of Mead Johnson. The deal has a very small negative impact to our valuation, but this is immaterial to our GBX 6,800 fair value estimate. We believe there is modest upside to Reckitt's shares.