If you have children you've complained about the cost of baby formula. Today a baby formula maker had an IPO whose success is built on pricey fake mother's milk. Mead Johnson (MJN), leader in the pediatric nutrition market, sold 30M of 200M shares outstanding. Proceeds from the offering, a carve-out from Brisol-Myers Squibb (BMY), valued the company at over $4.8B.
It appears to be reasonably valued. The company is selling for 1.7x revenue, 10x earnings, has grown sales at 5-10% even in challenging economic times, and boasts of a 22% operating margin.
Now to the obligatory "use of proceeds" section. The $600M in net value the company received from the IPO will go to pay an inter-company note. However, $1.4B will still be left in debt since the parent company, surely through the advice of a strategic adviser, decided to "lever" MJN with $2B in debt prior to the carve-out. Not that this isn't manageable given Mead Johnson's level of profitability, but to put the stockholders' equity at a deficit of $800M to line the wallets of Bristol-Myers Squibb is wrong. BMS will use the $2B to pay a special dividend. That ain't so special a way for Mead to start as a public company, even if it can rest on high-priced milk.
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