Mead Johnson warns of possible violations in China

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News,Business

NEW YORK (AP) — Infant formula maker Mead Johnson Nutrition said its Chinese subsidiary may have violated U.S. and local laws, including anti-bribery statutes.

Mead Johnson said in October that the Securities and Exchange Commission was looking into its business practices in China and said it was also conducting its own investigation. The company disclosed Tuesday that some promotional spending violated its internal policies, and it may have also broken the Foreign Corrupt Practices Act and local laws. The Glenview, Ill., company said its investigation isn't over and it is discussing its inquiry with the SEC.

Imported milk formulas are popular in China because of widespread distrust of Chinese dairies following product quality scandals. Imported milk formula can cost up to three times as much as domestic competitors, and in 2013 regulators said six companies had illegally worked together to set minimum retail prices for their formulas. Five of those companies are foreign.

The companies were fined a total of $108 million and agreed to cut their prices. Mead Johnson, which was fined $33 million, agreed to change its sales and marketing practices.

Citi Investment Research analyst David Driscoll said the announcement isn't a surprise. He said the company may have made improper promotional payments to some Chinese doctors, but he doesn't expect it to be a major problem for Mead Johnson.

"We expect any wrongdoing to be of a limited nature, and expect Mead to clean this issue up quickly," he said.

Shares of Mead Johnson Nutrition Co. rose 90 cents to $78.15 in midday trading.

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