Baby formula concerns lead to record low shares for Reckitt Benckiser

In a significant development, Reckitt Benckiser, the multinational consumer goods company, is facing legal battles over its baby formula division, Mead Johnson. The company acquired Mead Johnson for $16.6 billion in 2017, but plans to sell it off are now being reconsidered due to a series of lawsuits.

The lawsuits, similar to those faced by Abbott Laboratories, have been viewed as a "shakedown" by some experts. However, the causes of Necrotising Enterocolitis (NEC), a condition linked to some baby formulas, remain unclear. Recent trials have shown that the formulas and fortifiers do not increase the incidence of NEC.

A US court has ruled that a baby formula produced by Abbott Laboratories caused a fatal case of NEC, and the company has been ordered to pay $495 million (£385 million) in damages. Reckitt's liability in the lawsuits is estimated to be between £400 million and £8 billion.

The legal problems surrounding the baby formula may renew calls for a more radical overhaul of Reckitt. The company's CEO, Kris Licht, who took the position on October 1, 2023, has yet to make any public statements about a possible exit from the baby formula business or alternatives for shareholder returns by the end of next year.

Despite these challenges, Reckitt is pressing ahead with its plans to streamline the company. The company plans to sell the baby formula division, Cillit Bang, and Air Wick Air Fresheners, which accounted for around 30% of its £14.6 billion sales last year. The aim is to keep "power brands" in a "higher-growth, higher-margin business" with £10.3 billion of sales.

However, the prospects of additional delays to any sale of Mead Johnson are a pity, as the overall plans for streamlining the company are considered "eminently sensible" by some experts. Inflation is making it harder for Reckitt to pass on costs to consumers, and the restructuring of the company may take a long time.

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This article was first published in our website's magazine. It's important to note that the home-care assets won't be sold until the end of next year. The exact plans for Reckitt's shareholders after the sale are yet to be announced. Investors are waiting to see whether Reckitt will be subject to further payouts.

The latest setback in the legal problems surrounding the baby formula may have far-reaching implications for Reckitt. As the situation develops, we will continue to provide updates on this story. Stay tuned for more.