Perrigo to sell infant formula business to MeridianMade for up to $175 million

Perrigo agreed to sell its infant formula business to privately held MeridianMade for up to $175 million: $40 million in cash at closing and up to $135 million in performance-linked payments through 2030. Perrigo expects the deal to close in the first half of 2027 as it refocuses on over-the-counter medicines and self-care products. The sale comes amid scrutiny of the unit’s manufacturing quality and contamination risks, and follows Perrigo’s $10 million settlement of a US class action alleging collusion with Gerber to exclude competitors.

Analysis

The headline value overstates near-term de-risking: only $40 million is payable at closing, while most consideration depends on performance through 2030. Treat the earnout as contingent rather than as cash available for debt reduction or reinvestment. With closing not expected until 2027, PRGO retains execution and regulatory exposure in the interim; buyer leadership’s prior association with a recalled formula brand raises diligence and reputational questions, but does not establish a problem with this transaction.

The strategic upside is cleaner focus on OTC/self-care, but the key question is whether formula’s exit improves consolidated margins and simplifies risk after stranded costs, rather than merely removing revenue. The antitrust settlement is not an admission of the allegations, yet it reinforces scrutiny of private-label pricing and could constrain future pricing power across store-brand formula. Abbott’s nutrition separation may also sharpen competition for capacity and customers, though the direction is uncertain.

Near term, limited basis for a directional trade: deal proceeds are small upfront relative to the headline and the completion date is distant. Over 1–3 months, watch PRGO guidance and disclosure of retained liabilities, stranded costs, and earnout mechanics. Over 6–18 months, the thesis depends on OTC/self-care growth and margin improvement offsetting the disposed business. Falsifiers: guidance or margins weaken after adjusting for the divestiture, closure is delayed by regulatory or diligence issues, or management cannot show a credible use for proceeds.

Key Decisions for Investors

• No immediate event-driven position in PRGO; the upfront cash and long-dated, performance-based remainder do not support valuing the deal at its maximum headline amount.
• Put PRGO on a catalyst watchlist through upcoming results: verify the formula unit’s revenue and operating contribution, expected stranded costs, liabilities retained, and the earnout’s performance definitions before underwriting accretion.
• Revisit a relative long in PRGO versus consumer-health peers only if management demonstrates improving OTC/self-care growth and consolidated margins after the exit; reduce or avoid exposure if guidance weakens or disposal costs erase the benefit.
• Track regulatory scrutiny and competitive pricing in private-label infant formula as a sector risk, not a proven PRGO-wide earnings hit; the settlement resolves a claim but does not establish the alleged conduct.