Mead Johnson Worth $115 In Buyout; Danone Combo Would Face Smallest Anti-Trust Scrutiny

Mead Johnson Nutrition CO MJN shares closed up over 11 percent at $83.78 on Tuesday amid renewed takeout chatter. Benzinga reported in February that a source said Danone was close to a takeover of Mead Johnson after a slowdown in talks.

According to that source, Danone and Mead Johnson were -- at the time -- considering a takeout that valued the stock at a market capitalization of $18 billion.

The latest rumors suggest Nestle could also be involved in the bidding.

Citi: Mead Johnson Worth Average Of $115/Share In Takeout

What's more, new analysis from Citi's David Driscoll suggests a premium is indeed possible.

"In a takeout scenario, we go to our DCF to provide guidance on a takeout price which suggests a range between $100-$131," Driscoll wrote in a note on Tuesday afternoon. That calculation uses terminal growth of 3.5 percent and WACCs between 7 and 8 percent.

Pfizer Nutrition's purchase by Nestle, the Gerber-Nestle deal and the Numico-Danone deal averaged FV-to-EBITDA valuations of 16x to 22x; by contrast, a $115 Mead Johnson buyout would sport a 21x EBITDA multiple, Driscoll said.

Renewed interest in Mead Johnson is "logical," the analyst said, adding that a buyout makes sense strategically. "Perhaps Mead's improvement plan for China has motivated others to make a move before Mead regains strength & momentum in this large, important market," he suggested.

A Danone-Mead Johnson combination, in particular, would face "few anti-trust hurdles," the analyst wrote, as both companies' infant formula businesses don't compete. A Mead-Nestle combination, on the other hand, would have "substantial overlap" in Latin America and "modest overlap" in Asia and North America.

Since the initial Benzinga report of Danone interest in February, Mead Johnson has risen almost 14 percent.