(Bloomberg) -- Reckitt Benckiser Group Plc plunged to an 11-year low on Monday after a verdict against Abbott Laboratories intensified concerns over infant formula lawsuits faced by both companies.
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Shares in the British firm fell as much as 10% to the lowest since 2013, after Similac-maker Abbott was ordered by a jury to pay almost $500 million over allegations it hid the risk that its premature infant formula can cause potentially fatal bowel disease. Abbott fell 5.5% in New York premarket trade.
The verdict follows a decision made against Reckitt’s Mead Johnson Nutrition unit in March, where a jury awarded an Illinois woman $60 million in damages, saying that its Enfamil formula led to the death of her premature baby. Mead Johnson is facing a string of state and federal lawsuits in the US.
Jefferies analysts including Matthew Taylor and David Hayes said the Abbott verdict was “likely to depress sentiment” on both stocks in these claims. Barclays Plc analyst Iain Simpson said it was “close to a worst case scenario.”
Reckitt will “continue to vigorously defend ourselves against plaintiff lawyers’ allegations in the interest of safeguarding the health of premature babies,” a spokesperson said in a statement.
Last week, Reckitt said it would “consider all strategic options” for its Mead Johnson formula unit, which it bought in 2017 for around $17 billion.
However, in the aftermath of the Abbott decision, Barclays’s Simpson sees many of these options as “considerably more challenging” and noted that a settlement of the infant formula lawsuits would now be a precondition for any sale or initial public offering of Mead Johnson.
“A sale or IPO prior to settlement looks unlikely unless Reckitt retains litigation risk, which would largely defeat the purpose,” Simpson wrote in a note on Monday, adding that settling litigation seemed challenging until the second half of 2025 at the earliest. He added that he sees a likely settlement cost for Reckitt at around £500 million, with a worst case outcome of £2 billion.
Pressure for Reckitt to settle the lawsuits “could build,” Bloomberg Intelligence’s Diana Gomes and Holly Froum said, noting plans to exit Mead Johnson as part of an overhaul.
For Abbott, JPMorgan Chase & Co analyst Robbie Marcus said the almost $500 million verdict was much higher than investors had expected. The trial is among more than 1,000 such claims against Abbott and other formula makers.
“With Friday’s negative ruling of almost $500 million, we think this will raise investor fears of an ultimate settlement amount,” Marcus wrote in a note on Sunday, adding that investors may choose to avoid litigation liability risk altogether.
--With assistance from Subrat Patnaik and Kwaku Gyasi.
(Updates shares. Adds commentary throughout and chart.)
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