Democratic lawmakers are urging the top U.S. competition chief to review a plan to sell Reckitt Benckiser’s baby formula unit to a private equity firm, warning it ‘could shrink’ the market in the event national shortage.
US Senators Elizabeth Warren, Cory Booker and Bernie Sanders, along with House Representative Katie Porter, sent a letter on Tuesday asking Jonathan Kanter, head of the US Department of Justice’s antitrust unit, to investigate the attempted sale of Reckitt’s infant formula business, whose brands include Enfamil.
Clayton, Dubilier & Rice is said to be among 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 around $7 billion.
Lawmakers urged Kanter to “examine carefully whether such a transaction would harm competition or prolong the [baby formula] crisis” and take legal action to block the transaction if necessary.
The letter said the deal would likely burden the maker with increased debt, weakening the second-largest infant formula maker in the United States as families rush to get the product. They also said an acquisition could reduce competition in an already heavily consolidated industry.
“If private equity investors take over a key infant formula maker in an effort to further consolidate and merge operations when the market is already failing families and their children, things will be even worse for consumers.” , says 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 putting product safety at risk.”
Reckitt replied that he operated factories around the clock and worked closely with the government to increase inputs and manufacturing capacity. Ensuring that “safe, high-quality formula is in the hands of families who need it” remains a top priority, he added in a statement.
Clayton, Dubilier & Rice and the DoJ declined to comment.
Last month, the United States said it would increase imports of infant formula to meet growing shortages after some parents said they could not feed their infants. Product supplies had been under pressure for months due to disruptions in labor markets and global supply chains following the Covid-19 pandemic.
Worse still, producer Abbott later recalled three of its products after four babies who consumed them fell ill and two died. Abbott then closed its manufacturing plant in Sturgis, Michigan, while Food and Drug Administration inspectors investigated.
Reckitt is looking to sell the rest of its infant formula business after divesting the Chinese arm last year. The planned sale would undo the 2017 acquisition of Mead Johnson, one of the largest ever, which was completed under former chief executive Rakesh Kapoor.
The letter comes as top US antitrust officials, including Kanter and Lina Khan, chairwoman of the US Federal Trade Commission, pledged to strengthen scrutiny of transactions involving private equity. Kanter warned last month of a coming crackdown, saying the buyout groups’ business model was “often very at odds with the law and very at odds with the competition that we’re trying to protect.”
Weeks later, Khan said she would take a “tougher” approach to overseeing private equity deals, pointing to the “life and death consequences” when takeovers put large swathes of the economy under the hood. control of Wall Street.
Lawmakers have urged Kanter to scrutinize any takeovers, including those beyond the infant formula market. “The ruinous private equity model does not promote long-term competition; it reduces quality and safety and drives vulnerable target companies out of business,” they said.