$2.2 billion! Mead Johnson China business sold to Chunhua capital!

Today, Chunhua capital bought the business of Mead Johnson, a famous milk powder brand, from Lijie.

Early this morning, Beijing time, China’s consumer company, which owns Durex and drip products, announced that it had reached a final agreement to sell its infant formula and child nutrition business to Chunhua capital in China (including Chinese mainland, Taiwan and Hongkong) with a value of US $2 billion 200 million. It is worth noting that Lijie will still retain 8% of the equity of the relevant business.

This also means that, four years after the wholly-owned acquisition of BJS, Mead Johnson’s China business will enter a new era controlled by well-known local private equity companies: previously, Chunhua capital’s investment cases also included Yum China, Alibaba, byte beat, and JUNLEBAO, a local brand very familiar to the milk powder industry.

Agreement content

Before the agreement was reached, the company announced in February this year a comprehensive strategic assessment of its infant nutrition business in Greater China, the company said in a circular.

Xiaoshidai noted that the deal will sell the infant nutrition business in Greater China as a whole, including production facilities in nimegen, the Netherlands and Guangzhou, China. This transaction includes a perpetual exclusive license to use Mead Johnson, Lanzhen, platinum Rui and anerbao brands in Greater China without license fee.

In addition, after the completion of the transaction, Lijie will continue to maintain the brands of Mead Johnson Lanzhen, platinum Rui and anerbao in the world, and continue to operate these brands in other countries or regions outside the Greater China region.

In this transaction, the company expects to generate cash tax costs of about 300 million pounds, as well as transaction and other costs of about 200 million pounds. The net income from the transaction will be used to reduce the group’s net debt.

Today, Laxman Narasimhan, chief executive of Lijie, described in the briefing that the deal marks another solid step in implementing the strategy of revitalizing sustainable growth and creating long-term value.

“After a comprehensive and detailed strategic assessment, we have found an ideal new owner for the nutrition business in Greater China, which will become a part of Chunhua capital group. After the completion of the transaction, our nutrition business will usher in better and more sustainable growth and profit performance. ” Laxman said.

He said the company will continue to maintain its “market leadership” in North America, Latin America and Southeast Asia, and continue to have a “strong product portfolio” including vitamins, minerals and nutritional supplements as well as adult nutrition products. At the same time, efforts will be made to integrate brand advantages and investment accumulation in scientific research and innovation, as well as valuable experience in e-commerce and efficiency improvement, so as to lay a solid foundation for future growth.

He also said that in the future, Lijie will continue to be committed to the development of the health, health and nutrition supplement business in the Chinese market, and is “extremely excited” about the brand development and business expansion opportunities.

Hu Zuliu, founder and chairman of Chunhua capital group, also said in the notice that he expects to maintain close cooperation with Lijie and continue to carry forward the brand inheritance and brand power of Mead Johnson. He also pointed out that Chunhua capital has rich investment experience in China and rich local resource network, which can provide strong support for the development of the business in the next stage.

According to reports, the transaction is expected to be completed in the second half of 2021.

Releasing potential

In February this year, the parent company of Mead Johnson, Lijie Shi, officially announced that it would carry out a strategic assessment of Mead Johnson’s infant formula business in Greater China. The decision is part of Lijie Shi’s plan to adjust its product portfolio to seek higher growth.

“The purpose of this review is to unleash the growth potential of the great brand Mead Johnson.” Mead Johnson China said at that time that China’s infant formula industry was in the stage of integration, and the assessment was only a reflection of actively responding to market changes.

According to the data released today, in fiscal year 2020, the net income from Mead Johnson’s China infant nutrition business was 861 million pounds, the operating profit was 850 million pounds, and the total assets was 5.4 billion pounds (according to the exchange rate used by Lijie in 2020, 1 pound is equivalent to 8.85 yuan).

In Lijie’s assessment, opportunities and challenges have been thought through“ We continue to maintain a good competitive situation with multinational counterparts, and achieve share growth in high-end and super high-end markets. However, the slowdown of high-end development and greater competition brought by local brands are expected to reduce growth opportunities in the short term. ” Li Jie said.

Laxman Narasimhan, CEO of lijishi (fourth from left)

Laxman Narasimhan, CEO of Lijie, agrees that last year, China’s infant nutrition business showed strong basic executive power, and its offline executive proficiency was stronger. In addition, innovation and new products are making good progress. In terms of share, Mead Johnson’s share of online channels and social e-commerce channels both increased, and its overall share in mainland China remained stable.

However, he also pointed out that the milk powder business is facing many challenges, including structural challenges that need to be solved, ports in Hong Kong have been closed longer than expected and it has not yet been determined when to reopen, strong investment from local competitors to promote growth, the impact of the epidemic on the birth rate, and so on.

Rush to buy

After Li Jieshi released the news of evaluation, rumors about “rush buying” began to spread one after another, which showed that all kinds of capital had a strong interest in Mead Johnson’s business in China.

In May this year, according to an anonymous source, the first round bidders for Lijie’s China baby nutrition business (mainly Mead Johnson milk powder business) included private equity companies such as Bain Capital, Carlyle investment group and KKR. Preliminary offers have also been submitted.

The first to give a positive view on this rumor is new hope. On May 20, Xi Gang, chairman of new hope dairy, said that new hope grassroots intellectual capital participated in the bidding for mjn’s Greater China business. However, due to the large scale and complex structure of the bid, the result is unpredictable.

Subsequently, some investors also asked Yili whether it had acquired Mead Johnson China. The company replied that it has no information to be publicly disclosed in this regard. As for JUNLEBAO, the relevant person of the company said that “no relevant news has been heard”.

According to reports, Lijie had hoped that the value of the transaction would exceed 2 billion US dollars (about 13.016 billion yuan), and the amount released today exceeded that expectation.

Chunhua capital

So, where is Chunhua capital about to take over?

Today, xiaoshidai read Chunhua capital’s official website and learned that it claims to be “a high-end research, consulting and global alternative investment company based in China”. It was founded by economist and financial expert Dr. Hu Zuliu, a former partner of Goldman Sachs Group and head of Greater China.

“Chunhua helps to improve the operation ability, market competitiveness and sustainable profitability of the invested companies by establishing close strategic cooperation with the invested companies, so as to create excellent long-term value.” According to the official website.

According to Hu Zuliu’s recent dialogue with touzhong.com, Chunhua capital, which was established in 2010, has a management scale of over 100 billion yuan. It is one of the oldest and largest institutions in China’s PE industry, and has invested many well-known projects, including but not limited to Yum China, Alibaba, Xiaopeng auto, byte jump, Shangtang technology, ant group, fourth paradigm Hello, travel, prosperity, etc.

“We don’t make rash decisions. Instead, we make decisions from top to bottom, from bottom to top, after in-depth and detailed research on the macro situation, industry trends and company fundamentals.” Hu Zuliu said in the report.

Chunhua capital official website (historical data)

Although Chunhua capital seems to gradually focus on Internet related racetracks, its cumulative investment in more than 60 enterprises also includes the consumer sector.

What is most familiar to the milk powder industry is that in 2019, led by the management of JUNLEBAO group, Chunhua capital, together with Ping An capital and junqian shares, completed the acquisition of 51% equity of JUNLEBAO at a price of 4 billion yuan. After the completion of the acquisition, JUNLEBAO officially realized the complete separation with mengniu dairy.

Talking about entering the infant formula industry, Hu Zuliu said at that time that Chunhua had long focused on the new growth model of China’s economy, explored investment opportunities in line with the core trends of urbanization, consumption upgrading, scientific and technological innovation, and paid special attention to the rise of China’s local consumer brands. He also pointed out that Chunhua was very optimistic about the development of China’s leading dairy enterprises.

Although it is still unclear how Chunhua capital will play after it “takes over” Mead Johnson’s business in China, on the one hand, it has local Internet enterprise networks such as Ali and byte beat, and on the other hand, it has the investment experience of retail and consumer goods giants, It seems to leave a huge space for Mead Johnson’s future development in China: including digital marketing, opening up online and offline consumption scenarios, enabling e-commerce and promoting further business sinking.

In addition, some industry analysts also believe that as Lijie will retain 8% of the equity of Mead Johnson’s business in China, this will help this well-known milk powder brand to continue to receive foreign endorsement and support in R & D, supply chain, food safety management, etc.

Pay attention to “xiaoshidai” (wechat: foodinc) “and reply to” Mead Johnson “to see the wonderful news.

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