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Reckitt Benckiser to buy Mead Johnson for $16.6 billion

´╗┐Reckitt Benckiser (RB. L) has agreed to buy U.S. baby formula maker Mead Johnson Nutrition (MJN. N) for $16.6 billion, taking the British consumer goods company into a new area and expanding its presence in developing markets. Reckitt, the maker of Lysol cleaners, Durex condoms and Mucinex cold medicine, said on Friday it will pay $90 in cash for Mead Johnson shares, a 30 percent premium to their closing price the day before Reckitt said it was in advanced talks with the maker of Enfamil baby formula. Including Mead Johnson's debt, the deal is worth $17.9 billion and Reckitt Benckiser said it would finance the acquisition with debt underwritten by Bank of America Merrill Lynch, Deutsche Bank and HSBC. Reckitt - whose business has been hurt by a safety scandal in South Korea, slowing emerging markets and a "failed" Scholl product - also reported weaker than expected sales in the fourth quarter due to declines in Europe and North America. Still, Reckitt's shares were up 1 percent at 0915 GMT in London, as the Mead acquisition, which is Reckitt's biggest ever, overshadowed the weak results.

Reckitt Chief Executive Rakesh Kapoor said the deal represented "a significant inflection point" in its business since it nearly doubles the size of its faster-growing consumer health business and expands Reckitt's footprint in developing markets by two thirds. China will become Reckitt's second-largest market behind the United States following the Mead Johnson acquisition. Reckitt said its goal was for the Mead Johnson business to perform at the upper end of an estimated sector growth rate of 3 to 5 percent per year in the medium to long term.

The deal should add to Reckitt's earnings in the first full year after completion and by the third year it is expected to boost earnings per share by a double-digit percentage, with 200 million pounds of annual cost savings. Reckitt's fourth-quarter revenue was 2.76 billion pounds, up 1 percent on a like-for-like basis, it said on Friday. Several analysts said the consensus was for growth of 1.7 percent. For the full year, like-for-like revenue rose 3 percent and reported earnings climbed 6 percent to 256.5 pence per share.

Reckitt forecast like-for-like sales growth of 3 percent on a stand-alone basis for 2017, below analyst expectations, and reiterated a medium-term target of "moderate" margin expansion. The company said the issues that hurt it in 2016 would persist into the first half of 2017. Subject to shareholder and regulatory approvals, Reckitt expects the Mead Johnson deal to close by the end of the third quarter. The British company said it expected to retain a strong investment grade credit rating following the deal.

U.S. stock fund investors turning away from America First

´╗┐U.S. investors are favoring international stocks over domestic ones, in a shift away from the trend that followed Donald Trump's presidential victory, Investment Company Institute data released on Wednesday show. U.S.-based equity funds invested internationally attracted $4.7 billion during the latest week, the most in a year, while funds that buy shares of companies in the United States gathered just $814 million, according to the trade group's data. Foreign stock funds have absorbed more cash than their domestic counterparts in seven of the last eight weeks, the data show."I think you're seeing some better opportunities internationally," said Jim Jasinski, managing principal at Cape Ann Capital Inc, a wealth management company in Manchester, Massachusetts. "The U.S. markets have been on such an incredible run."During President Trump's inauguration last month, he declared "from this day forward it's going to be only America First," and stocks responded in kind. He has touted a stew of tax cuts, domestic infrastructure spending, regulation cuts and recasting trade deals to boost U.S. jobs and economic growth.

Investors spent the five weeks after his election buying U.S.-based domestic stock funds. World stock funds lagged behind, taking in just $4.2 billion over that period, $50.2 billion less than their domestic counterparts, ICI said. MSCI's benchmark global equity index, which includes the United States, hovered near record territory on Wednesday.

That obscures the fact that U.S. stocks have done far better. The S&P 500 index, a measure of U.S. stocks, has gained 9.5 percent in terms of price since the election, while a comparable MSCI gauge of 45 other countries gained just 5.1 percent. That may mean the foreign stocks are a relative bargain."Whether people like the new administration or not there's a prevailing feeling that it will be a pro-business administration," said Jasinski. "That's tending to prop that market up a bit more and rich valuations might be getting even richer."The relative safety of bonds and gold also drew interest from investors during the week through Feb. 8. Commodity funds, including those invested in gold, attracted $1.1 billion, their most since July 2016.

Bond funds gathered $11.6 billion during the week, the most in more than a year.