Reckitt Benckiser has suffered a huge £2.5billion loss from the sale of its struggling Chinese baby milk arm to private equity firm Primavera.
The Slough consumer goods giant, which owns Lysol disinfectant and Dettol soap, took on the business when it bought Mead Johnson in 2017 for £13billion – at the time Reckitt’s largest-ever deal.
But Reckitt struggled against slowing birth rates and intense local competition, and yesterday it announced it is selling the Chinese division for £1.6billion to Beijing- based Primavera.
Sell-off: Reckitt Benckiser’s Chinese baby milk arm struggled due to slowing birth rates and intense local competition
Reckitt expects a loss of about £2.5billion as a result of a goodwill writedown. Analyst Martin Deboo, from Jefferies, said Reckitt’s shareholders ‘would be happy to be out at almost any price’.
Reckitt had already written £5billion off the value of its baby milk business last year, around a third of its book value, before snipping another £985million off in February.
This means the decision to buy Mead Johnson four years ago has, so far, cost Reckitt a whopping £8.5billion.
Shares fell 0.7 per cent, or 47p, to 6400p yesterday – a market capitalisation of £46.3bn.
The loss adds another black mark against the name of former chief executive Rakesh Kapoor, 62, who raked in close to £100million of pay as boss from 2011 to 2019.
Kapoor wanted to refocus Reckitt towards higher-margin consumer healthcare products.
The board will be unable to claw back his massive bonuses as the rules only apply in cases such as gross misconduct and the complete failure of the business.
When he retired, his supporters pointed to an increase in the share price from £30 to around £60 during his eight-year tenure.
But critics said he left a legacy of sluggish growth, business disasters and unrest over his pay.
In the three years before he left, the firm was hit by disruption at its Dutch factory, product failures, an exodus of bosses and a cyber-attack costing £100million.
A scandal in South Korea saw one of its disinfectants blamed for the deaths of children.
Reckitt’s infant formula business in China represented 6 per cent of group sales of almost £14billion in 2020. It will retain an 8 per cent stake in the Chinese division after the sale.
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