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1 year ago

merger-annoucement-002

merger-annoucement-002

Mead Johnson’s

Mead Johnson’s portfolio is attractive in its simplicity and focus, with approximately 80% of 2015 net sales from the Enfa family of brands and approximately 65% of 2015 net sales in three markets; China, the United States and Mexico. Mead Johnson has a strong presence in Asia and Latin America, from where it derives 67% of its net sales. In 2015, Mead Johnson had net sales of $1.2 billion in China. Mead Johnson operated with an attractive gross margin of 64% and a non‐US GAAP operating margin of 25% in 2016. The combination will add significant value Mead Johnson’s infant and children’s nutrition business increases RB’s revenues in consumer health by approximately 90%, while its global Enfa franchise, which includes Enfamil, becomes RB’s largest Powerbrand. RB’s ambition is to bring together the best of both companies, keeping the consumer at the heart of the combined group. RB has extensive multi‐channel go‐to‐market and global branding capabilities across consumer health and a track record of consumer‐centric innovation. These capabilities, together with RB’s culture of swift decision‐making and a commitment to driving performance, will enable RB to add value to the Mead Johnson business by enhancing its position in key markets. The acquisition of Mead Johnson complements RB’s geographic presence, increasing its developing markets scale by approximately 65%. Developing markets will account for approximately 40% of the combined group’s sales, with a critical mass in key geographies, notably China. RB’s retail scale and whitespace expertise will also enable accelerated entry into new markets for Mead Johnson. RB and Mead Johnson have complementary e‐commerce expertise, particularly in China where approximately 30% of RB’s sales are online. Financial highlights of acquisition Under the terms agreed, Mead Johnson shareholders will receive $90 in cash for each share of common stock, valuing the total equity at $16.6 billion. Including Mead Johnson’s net debt of $1.2 billion as at 31 December 2016, the total enterprise value of the transaction is $17.9 billion, representing a multiple of 17.4x 2016 non‐US GAAP EBITDA of $1.0 billion and 14.0x 2016 non‐US GAAP EBITDA including expected run‐rate cost savings of £200 million. RB’s priority will be on the return of the Mead Johnson business to long term growth. Following an initial transitional period, RB’s goal is for it to perform progressively towards the upper end of the estimated category growth rates of 3‐5% per annum. RB’s multigeography supply chain infrastructure and distribution network will enhance Mead Johnson’s go‐to‐market capabilities. RB’s scale and expertise will also enable accelerated market entry into nascent territories for Mead Johnson where RB has existing and deep

understanding of the local consumer health dynamics. Further, RB expects to build upon Mead Johnson’s direct‐to‐consumer e‐commerce platforms. The integration of RB’s and Mead Johnson’s businesses is expected to deliver cost savings of £200 million per annum by the end of the third full year following completion. These arise principally from removing duplication in back office functions and leveraging the enhanced scale of the combined business in the procurement of raw and packaging materials, advertising and promotional expenditure and other spend. One‐off costs to achieve the savings are expected to be approximately £450 million. The acquisition is expected to be accretive to adjusted diluted earnings per share (“EPS”) in the first full year following completion and double‐digit accretive by year 3. The acquisition is expected to deliver a post‐tax return on invested capital in excess of RB’s cost of capital by year 5. RB intends to maintain its current dividend payout policy of about 50% of its adjusted net income. Financing The acquisition will be financed through new fully underwritten debt facilities with Bank of America Merrill Lynch, Deutsche Bank and HSBC. These facilities include $9 billion of term loans over 3 to 5 years and $8 billion of bridge funding to cover the cash consideration plus a further $3 billion to refinance existing Mead Johnson bonds if required. They also include an additional £1 billion revolving credit facility to provide financing headroom from the date of completion. RB expects to refinance the bridge by the issuance of bonds to reflect the expected cash flows of the combined group. Additionally, the Board does not intend to buy‐back any further RB shares until the debt level is materially lower. RB is in discussion with the rating agencies and expects to retain a strong investment grade credit rating. Integration planning RB has a track record of effectively integrating consumer health companies as evidenced by the acquisitions of Boots Healthcare International, Adams and SSL. Each has delivered an important inflection point of growth for RB. RB’s approach to integration will be to draw on the best of both businesses. RB will establish an infant and children’s nutrition division which will report directly to the RB CEO. A select number of key RB employees will transfer into this new division. RB will balance the opportunity to realise cost savings from back office and procurement, with the need to retain and invest in valuable talent at Mead Johnson, especially within the

RU-HX-IOM-002 new - Enersys - EMEA