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How Mergers & Acquisitions Could Boost Moat Indexes

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VanEck

U.S. Domestic Moats: Buy Buy Baby

Infant formula company Mead Johnson Nutrition Co. (MJN US, +24.60%) benefited from corporate action news shortly after being added to the U.S. Moat Index in December. News of an intended acquisition of MJN US by narrow moat UK conglomerate Reckitt Benckiser Group (RB GB) boosted shares of the company in February. MJN US joins other recent constituents to benefit from acquisition activity: LinkedIn Corp., St. Jude Medical, Inc., and Time Warner, Inc.

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Market Realist

Reconstitution benefits index

In December, the Morningstar Wide Moat Focus Index’s (MOAT) portfolio was reconstituted, with 11 stocks (CVS) added and 11 stocks removed. US infant and child nutrition specialist Mead Johnson Nutrition (MJN) was one of the stocks added to the portfolio. MJN was added at a discount to its fair value as calculated by Morningstar, at a price-to-fair value ratio of 0.84.

Consolidation: A power boost?

In February, British consumer health company Reckitt Benckiser bought Mead Johnson Nutrition (MJN) for $16.6 billion, or $90 per share. In response to the acquisition, MJN stock jumped 24.6%, boosting the Morningstar Wide Moat Focus Index’s overall returns. Likewise, mergers and acquisitions by index constituents provided healthy returns in February. Consolidation in various industries could grant competitive advantages to companies (AXP) (UTX) in the International Moat Index (MOTI), ultimately boosting returns.

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