Baby food sale threatens at large food companies

Reckitt-Benkiser's offer is a size larger than Friso, because the division that, among other things Enfamil produces is estimated to generate between €6,5 and €7,7 billion, reports Bloomberg news agency. Infant food brand Friso, including factories, can generate between €1,5 and €2,2 billion in sales, it was recently estimated.

In the event of a sale somewhere between the stated amounts, Reckitt-Benckiser will have to settle for a significant write-off, because about five years ago the company bought the infant nutrition division (then Mead Johnson) for almost €15 billion. However, investors no longer seem to be concerned about this, because after the news became known about a possible sale of the infant nutrition activities, the rate of Reckitt-Benckiser immediately increased by a few percent.

The question is who should buy Reckitt-Benckiser's infant nutrition business. According to market experts, Nestlé and Abbott will find it difficult to convince competition authorities that the acquisition will not make them too powerful in the market for this product. There is a chance that it will then become 'private equity', or venture investors. A Chinese buyer could also be possible.  

The infant food market is becoming increasingly difficult and crowded. In recent years, a lot of demand and therefore growth has come from China, but there is not much money to be made in this market anymore. The Chinese authorities are making it increasingly difficult for foreign companies and favor domestic producers. Fewer children are also being born than first thought. Export figures also show that sales of infant nutrition to China are currently declining sharply. This shifts pressure to other markets, but there too there is increasing oversupply. 

The French dairy cooperative Sodiaal has therefore already drawn conclusions: the knife is being cut in the production of infant food (ingredients). Margins are declining too quickly and there is little left to earn. 

Not an easy sale
This situation means that it should not be assumed in advance that sales of child nutrition activities will yield very high amounts. Analysts studying the possible sale of Reckitt-Benckiser's infant nutrition activities therefore speak of a potentially difficult sale. FrieslandCampina could also experience something similar. Moreover, in the event of a successful sale, the entire amount would not immediately become freely available. Part of the proceeds must be offset against 'goodwill' on the balance sheet.