Mead Johnson plans to increase investment in Zeeland plant

April 13, 2009
| By Pete Daly |
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ZEELAND — Mead Johnson Nutrition, which is planning a new investment in processing equipment at its Zeeland infant formula plant, had an auspicious start to 2009.

The Indiana company produces Enfamil powdered infant formula products for domestic as well as international markets at its Zeeland plant, plus Enfamil Lipil and Human Milk Fortifier.

About 350 people work at the Zeeland plant, which is a major supplier to international markets in Mexico and China. A Zeeland city official said Mead Johnson indicated on a request for a PA 198 tax abatement that it intends to invest about $8 million at the plant, and that most of the investment will be in new processing equipment.

The new investment will add about 2,000 square feet to the existing 512,000-square-foot facility, but it will not result in an increase in employment.

Zeeland mayor Lester A. Hoogland had high praise for Mead Johnson, noting the major expansion and additional investment there that has taken place over the past 20 years.

"They are good corporate citizens," said Hoogland, adding that the company is very successful.

He said the fact that the current plans do not add jobs "doesn't create any controversy. We've done very well with the Act 198 process. We never have turned down a 198. It's been a positive for Zeeland — industry pays over 70 percent of Zeeland's bills."

Mead Johnson was founded in 1905 and introduced Dextri-Maltose, its first infant formula, in 1911. It began operations in Zeeland in 1924 in a former cheese factory. Mead Johnson became a wholly owned subsidiary of pharmaceuticals giant Bristol-Myers Squibb Co. in 1967.

Meanwhile, the Zeeland facility continued to grow over the generations, with a major investment of $20 million in 2004 for a new hypoallergenic base and hydrolysate drying system.

Mead Johnson was spun off — to a certain extent — from Bristol-Myers Squibb on Feb. 11, with an initial public offering at $24 per share that made investment news around the world when it sold five million shares more than originally planned. The success of the Mead Johnson IPO may signal that investors are returning to the stock market for new stocks. One expert noted that the IPO market has been frozen since the global credit crisis began in 2008.

Bristol-Myers, based in New York, will retain at least an 80 percent equity stake in Mead Johnson and will control the new company's board, according to a filing with the Securities and Exchange Commission at the time of the IPO.

Investors snapped up the newly issued stock (MJN; NYSE), buying more shares than expected and pushing the value of the stock up 10 percent. The $720 million in stock that was offered was the largest IPO in 10 months in the United States, and the first IPO in nearly three months. The closing price of MJN on Feb. 11 was $26.43; closing price early last week was more than $27.

Just six days after the IPO was announced, Mead Johnson announced it had closed it, noting that the underwriters of the offering had exercised their over-allotment option and purchased 4.5 million additional shares of Class A common stock.

Including the over-allotment, Mead Johnson sold 34.5 million shares in the offering for net proceeds of approximately $782 million, after deducting underwriting discounts, commissions and estimated offering expenses. The company said that with this over-allotment, it will have 204.5 million shares of Class A and Class B common stock outstanding.

There were four IPOs planned during the same week; the Mead Johnson IPO was the only one that succeeded.

According to news reports, Mead Johnson was the first stand-alone pediatric nutrition company to go public. Its main competitors are Nestle SA, Abbott Laboratories and Wyeth. Nestle SA owns Gerber Nutrition in Fremont.

Sales of Mead Johnson infant and toddler feeding formulas Enfamil and Enfagrow are growing as they become more affordable in the developing economies around the world.

Enfamil and Similac are the two leading infant formula brands in the world, according to Les Funtleyder, an analyst with Miller Tabak & Co. in New York. Similac is made by Abbott Laboratories.

The successful IPO and partial spin-off of Mead Johnson from Bristol-Myers Squibb should be considered a positive move for Mead Johnson, according to Funtleyder, because it gives the company more independence from its parent company.

"This division gets them more attention and possibly more access to capital, which, if they needed it, could help them grow," said Funtleyder.

According to Mead Johnson's prospectus issued in late February, the company had $2.6 billion in net sales in 2007. Based in Evansville, Ind., the company has about 5,500 employees worldwide; besides Evansville and Zeeland, it has employees in Guangzhou, China; Chonburi, Thailand; and Delicias, Mexico.

Sales in North America/Europe accounted for 52.4 percent of Mead Johnson volume in 2007, while sales in Asia/Latin America were 47.6 percent.

Infant formula made up almost 70 percent of the company's sales in 2007. Children's nutrition products were about 27 percent of total sales volume in the same period.

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