Reckitt Benckiser Takes $6.5 Billion Charge Over Formula Deal

(Bloomberg) --

Reckitt Benckiser Group Plc, the maker of Enfamil baby formula, took a 5 billion-pound ($6.5 billion) charge on its acquisition of infant nutrition maker Mead Johnson as its new chief executive officer seeks to turn a page from his predecessor.

The company announced the impairment about a half year after Laxman Narasimhan succeeded Rakesh Kapoor, who engineered the 2017 deal and described it as an inflection point for Reckitt Benckiser. Since then, the company has suffered a series of setbacks amid sluggish demand for some of its consumer-health brands.

The shares fell as much as 5% early Thursday in London. They’ve risen 3% over the past 12 months.

Reckitt was already facing increased competition in Mead Johnson’s core China market even before the coronavirus emerged. The company said it was too early to determine the impact of the outbreak but added that it’s seeing increased demand for Dettol and Lysol cleaning and disinfectant products.

Narasimhan said on a call that the charge stems from a declining birth rate and higher supply-chain costs in China, though he said Mead Johnson still provides a “platform for growth.” While Reckitt has been criticized for paying too much for the company, Chief Financial Officer Adrian Hennah said it’s too early to say that’s the case.

‘Let’s See’

“Let’s see in a decade,” Hennah said.

The company reported a full-year operating loss of nearly 2 billion pounds. Comparable sales grew 0.3% in the fourth quarter, matching a company-compiled analysts’ forecast.

The new chief is seeking to restore performance by clearing the slate and quickly replacing key executives.

Narasimhan said Reckitt’s brands are strong and its recent woes are executional, not structural. He unveiled a 2 billion-pound investment program as the company aims to rejuvenate itself.

“RB is a good house in a great neighborhood and it has the potential to be a great house again,” he said on the call.

He said 2020 will be a transitional year as the company invests in new initiatives, hitting its profit margins in the near term. The market should expect higher comparable revenue growth than in 2019, he said.

To contact the reporters on this story: Thomas Buckley in London at tbuckley25@bloomberg.net;Deirdre Hipwell in London at dhipwell@bloomberg.net

To contact the editor responsible for this story: Eric Pfanner at epfanner1@bloomberg.net

©2020 Bloomberg L.P.