Reckitt Benckiser Group Plc agreed to sell its Chinese baby-formula business to Primavera Capital Group for $2.2 billion as the company seeks to exit from the struggling sector.
Reckitt will retain an 8% stake in the unit and sees net cash proceeds of about $1.3 billion, which it plans to use to reduce debt, the company said in a statement on Saturday. The household-products maker, based in Slough in the U.K., expects to record a net loss of about £2.5 billion ($3.5 billion) related to the sale, primarily on the re-measurement of goodwill and intangible assets.
The deal includes manufacturing plants in Nijmegen in the Netherlands, and Guangzhou, China, and exclusive license of the Mead Johnson and Enfa family of brands in China. Reckitt will continue its global ownership, operating the brands in the rest of the world. The transaction is expected to be completed in the second half of 2021.
The sale marks the end of Reckitt’s venture into the baby-formula business started just four years ago. The sector has struggled since the U.K.-based firm bought U.S. baby-milk group Mead Johnson in 2017.
Reckitt put its infant-nutrition business in Greater China under strategic review earlier this year as part of Chief Executive Officer Laxman Narasimhan’s biggest portfolio revamp since taking the helm of the company in late 2019. While Reckitt’s overall sales grew a record 12% in 2020 amid surging demand for Lysol and hygiene products, the China baby-milk business has been a drag on performance.
Shares in the company are little changed this year, versus a 9.4% advance in the U.K.’s benchmark FTSE 100 Index.
China, the world’s most populous country, used to be a boom market for baby products, but it has lost its allure due to falling birthrates.
Local competition has also intensified, putting pressure on Reckitt and its rivals Nestle SA and Danone SA, which plowed into the market since China eased its stringent one-child policy in 2013 and allowed each family to have two children in 2016.
Reckitt remains committed to its hygiene, health and vitamins, minerals and supplements portfolios in China, Narasimhan said in the statement.
China, which in 2020 registered its lowest number of births since 1961, last month raised the number of babies that families can have to three from two. Despite the change, it’s expected to have little impact on the population in the near future as incentives for more children remain limited.
Primavera is a Chinese private equity firm that is one of the earlier investors in Ant Group Co. HSBC Holdings Plc acted as the financial adviser to Primavera on the transaction.