What's going on?

The maker of Durex condoms, UK-based Reckitt Benckiser, is buying US-based baby food maker Mead Johnson in a $17 billion deal. In the words of one well-known Wall Street veteran, �Now that�s a hedge!�

What does this mean?

Reckitt is one of those companies you may have never heard of but from whom you might buy a lot of products: it makes Durex, French�s Mustard, Air Wick, Vanish and other consumer goods. The idea is that by combining with Reckitt�s already large consumer goods footprint, the combined firm can benefit from larger scale distribution and remove some costs. The deal is also a big bet on emerging markets, from which Mead Johnson derives the majority of its sales.

Why should I care?

The bigger picture: Big western companies are still looking to emerging markets for growth.

People in developing economies typically have larger families than those in developed countries. And as those countries� economies develop, spending on things like baby food and infant nutrition tends to increase. Therefore it makes sense for a consumer goods giant who wants to improve its growth prospects to invest in such areas � which is exactly what Reckitt is doing.


For the stocks: Mead Johnson has been a big winner; Reckitt�s share price reaction is more complicated.

News of this potential takeover first broke on February 1st. Since then, Mead Johnson�s share price is up almost 25%. Meanwhile, Reckitt�s shares were up about 5%, although the stock declined on Friday after it said it expected its sales this year to be lower than research analysts were forecasting (that�s totally separate from the takeover announcement). This acquisition is aimed at improving its sales growth so, in theory, it should help.