Credit Suisse Sees Two Ways To Win In Mead Johnson: Takeout Or Accelerated Margin Expansion

Credit Suisse’s Robert Moskow upgraded the rating on Mead Johnson Nutrition CO MJN from Neutral to Outperform while raising the price target from $76 to $100.

Potential Takeout Bid

According to the Credit Suisse report, “A recent Bloomberg News article citing financial blog Betaville as a source indicates that Mead Johnson has hired a banking adviser in response to inquiries from potential acquirers Nestle and Danone.”

Moskow mentioned that while the story could not be corroborated, it did make sense that both Nestle and Danone would see Mead Johnson as an attractive acquisition target and that both Mead’s management and board would view a bid “very seriously.”

“With demand growth in emerging markets slowing, one would think that Nestle and Danone's management teams would take a fresh look making a deal work through cost synergies. Both companies have been active acquirers in the Nutrition space; it is consistent with their strategic direction,” Moskow noted.

Margin Expansion Initiatives

The analyst also mentioned that management had informed investors that the company would only be able to recover to its “normal” levels of growth by 2018, since it is taking steps to lower overhead expenses, implement better controls on demand generation spending and catch up to peers in the China ecommerce space.

Although a merger would help accelerate such initiatives and enhance them though organizational synergies, Moskow believes that if management decides not to sell yet, shareholders could be appeased via an acceleration in these plans and an increase in the guidance.