Was the acquisition of Mead Johnson Reckitt Benckiser’s fatal mistake?

Established by Edward Mead Johnson, Mead Johnson & Company has been around for over a century. It was founded in 1905 in New Jersey, USA. What started as a one-man dream steadily transformed into a multi-million-dollar company that specialised in 70 products across 50 countries. From the time of its inception, Mead Johnson has manufactured nutritional products for babies. The company’s flagship product has been its Enfamil baby formula. Other nutritional items include vitamin supplements and weight management solutions. On June 15th, 2017, the famous British consumer goods company, Reckitt Benckiser Group, acquired Mead Johnson. Over the years, it seems as if this was Benckiser’s fatal mistake. In this article, we will talk about the acquisition in detail along with why the same took Reckitt Benckiser down.

Was the acquisition of Mead Johnson Reckitt Benckiser’s fatal mistake?

Imge credit: Unsplash

Why Did the Merger Take Place?

Let’s start by addressing the curiosity that sparked public interest in this acquisition. Why would a British multinational wish to step into American grounds? Some people may only be aware of Benckiser’s laundry detergents, disinfectant sprays, and over-the-counter drugs. 

However, the company has spread its wings into other markets like personal care products and adult and infant nutrition. This means somewhere or the other, both companies produced products that could become substitutes. From this viewpoint, the geographical location makes sense. 

Reckitt Benckiser wanted to bolster its presence in markets across China, a country where Mead Johnson already had a firm footing. By purchasing the latter for $16.6 billion, Benckiser was establishing a ‘significant inflection point’ where its consumer health business could grow twice as much in the developing markets. 

At the time of the acquisition, Mead Johnson was still deep in debt, $17.9 billion to be precise. Reckitt Benckiser had the debt underwritten by the Deutsche Bank, HSBC, and the Bank of America Merrill Lynch. Perhaps the CEO at the time, Rakesh Kapoor, had a myopic view of his decision. 

 

2022: The Harbinger of Disaster 

As time went by, the cracks in Mead Johnson’s flagship product began appearing. The situation could only be kept hidden for so long until all hell broke loose in 2022. Parents of infants fed with Enfamil formula alleged that their baby developed a serious condition called Necrotizing Enterocolitis (NEC). 

They filed an Enfamil lawsuit against the manufacturer, the brunt of which had to be borne by Reckitt Benckiser’s Mead Johnson unit. Under the said condition, the Cleveland Clinic states that a baby’s intestinal wall becomes inflamed and dies. 

As a result, there is a perforation that allows harmful bacteria to pass into the bloodstream. This condition has a high mortality rate. It is highest among babies requiring surgery (50%). According to TorHoerman Law, a significant number of cases have been filed by parents of premature babies or those with low birth weight. 

What’s worse than the injuries is the fact that Mead Johnson was aware of the risks associated with its baby formula. Even then, the company chose to sacrifice innocent lives at the altar of personal gain. 

Just recently, the Canadian Food Inspection Agency recalled a class of Enfamil baby formula products due to bacterial contamination. Shockingly, no such recall has been made for Enfamil’s connection to NEC risks. Parents, especially of premature infants, are advised to feed nutritious mother’s milk or milk collected from a reliable human milk bank. 

 

The Current Situation 

Also known as the NEC lawsuit, the litigation against Mead Johnson is a part of cases filed against baby formula manufacturers in general. Even Similac’s manufacturer, Abbott Laboratories, has been severely criticized for similar reasons. 

In 2022, batches of Similac products were recalled due to bacterial contamination. All cases filed against the two baby formula manufacturers have been consolidated into a class-action multi-district litigation (MDL). 

Since the first filing, the baby formula lawsuit has steadily grown. Today, there are over 450 cases filed in total. We can safely assume that at least 150 of them would be against Mead Johnson. 

In a recent jury verdict, Reckitt Benckiser was asked to pay $60 million as a settlement. Compared to the original debt of $17.9 billion that the company had written off, this should not be a problem, right? The $60 million is the settlement amount for a single case where a mother lost her premature baby to NEC after feeding them with Enfamil formula. 

The company was criticised for not issuing adequate risk warnings to parents. Since its product harms the most innocent, Reckitt Benckiser could easily be looking at billions in total settlements. It is truly a sad tale of how one wrong deal has threatened to ruin the company. 

 

When all is said and done, Benckiser can hardly be seen as a victim of fate and poor choices. Despite the jury verdict, the company is debating against all light and reason that the decision was not backed by scientific evidence. It continues to stand by the safety of its products. 

Even at the time of the acquisition, the deal was overpriced especially since Mead Johnson was sinking in debt already. Rakesh Kapoor’s slip-up is still coming at a cost Benckiser is in no position to pay. It would be interesting to see how matters evolve as more jury verdicts are given. 

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