Democrats question Reckitt Benckiser’s plan to sell baby formula unit

Democratic lawmakers are urging the top US antitrust enforcer to scrutinise a proposed sale of Reckitt Benckiser’s baby formula unit to a private equity firm, warning it “could shallow out” the market during a national supply shortage.

US senators Elizabeth Warren, Cory Booker and Bernie Sanders, along with House representative Katie Porter, sent a letter Tuesday asking Jonathan Kanter, head of the US Department of Justice’s antitrust unit, to probe the attempt to sell Reckitt’s infant formula business, whose brands include Enfamil.

Clayton, Dubilier & Rice is reported to be among the private equity firms that have submitted bids for the unit, which UK-based Reckitt Benckiser put on the block earlier this year. The sale is expected to bring in about $7bn.

The lawmakers urged Kanter to “closely examine whether such a transaction would likely harm competition or prolong the [baby formula] crisis” and sue to block the transaction if necessary.

The letter said the deal would likely burden the manufacturer with increased debt, weakening the second-largest infant formula maker in the US as families scrambled to secure the product. They also said an acquisition could lessen competition in an industry that is already heavily consolidated.

“If private equity investors take over a key infant formula manufacturer with the intent to further consolidate and merge operations when the market is already failing families and their children, matters will be even worse for consumers,” said the letter, which was seen by the Financial Times.

Warren said in a statement: “Private equity firms have a well-documented history of hollowing out companies and jeopardising product safety”.

Reckitt said in response that it has been operating plants around the clock and working closely with the government to boost manufacturing inputs and capacity. Ensuring “safe, high-quality formula is in the hands of families that need it” continued to be a top priority, it added in a statement.

Clayton, Dubilier & Rice and the DoJ declined to comment.

Last month, the US said it would increase imports of baby formula to tackle growing shortages after some parents reported being unable to feed their infants. Supplies of the products had been under strain for months amid disruptions in labour markets and global supply chains in the wake of the Covid-19 pandemic.

Making matters worse, producer Abbott then recalled three of its products after four babies who consumed them became sick, and two died. Abbott subsequently closed its manufacturing facility at Sturgis, Michigan, while inspectors from the Food and Drug Administration conducted an investigation.

Reckitt is looking to sell the remainder of its baby formula business after disposing of the Chinese arm last year. The planned sale would unwind the 2017 acquisition of Mead Johnson, one of its largest ever, which was made under former chief executive Rakesh Kapoor.

The letter comes as senior US antitrust officials including Kanter and Lina Khan, chair of the US Federal Trade Commission, have pledged to heighten scrutiny of deals involving private equity. Kanter last month warned of a forthcoming crackdown, arguing buyout groups’ business model was “often very much at odds with the law and very much at odds with the competition we’re trying to protect”.

Khan just weeks later said she would take a more “muscular” approach to overseeing private equity transactions, pointing to “life and death consequences” when buyouts place large sections of the economy under the control of Wall Street.

The lawmakers urged Kanter to take a close look at any buyout, including those beyond the baby formula market. “The ruinous model of private equity does not promote long-term competition; it reduces quality and safety and drives vulnerable target companies out of business,” they said.