Poison milk is good for business
LONDON, April 18 – Nestle, the world’s biggest food group, is closing in on a deal to buy Pfizer’s infant nutrition business for up to US$10 billion (RM30.67 billion) to boost its business in China and extend its lead in the world of formula milk for babies, sources familiar with the matter said today.
The Swiss group had already been seen as favourite for
the business, and is now set to seal a deal later this month
after outbidding a joint team of Danone
and Mead Johnson in a
largely two-horse race.
“Nestle is in the lead position and is closing in on a
deal which we expect soon,” said one source.
Another source said the business would fetch
US$9-US$10 billion and expected a deal by the end of the
April.
If Danone loses out, analysts say the French group
will face a problem of how to expand, with its Chief Executive
Franck Riboud saying it did not have the firepower to mount
big deals which would seem to rule out an eventual move for
Mead Johnson.
The Pfizer unit is a high-growth US$2.1 billion
turnover business with over 70 per cent of sales in emerging
markets and a key position in China, and has attracted the
attention of the three largest players in the infant milk
formula sector.
Pfizer put the business up for sale last July
following its US$68 billion purchase of Wyeth in 2009, while
it is also looking to offload its animal health business and
says this is more likely to be spun off than sold outright.
A spokesman for Vevey-based Nestle, which holds its
annual general meeting in Lausanne tomorrow and releases
first-quarter sales figures on Friday, said “we never comment
on market rumours”.
Analysts said if the deal is concluded it would be
positive for Nestle and also may help Danone’s shares as there
has been concern that the French group might pay a huge price
for the business and massively leverage up its balance sheet.
“Overall, this deal makes huge strategic sense for
Nestle. It is in the right categories and the right markets
and with a reasonable price we would expect a fairly positive
response from investors,” said analyst Andrew Wood at
Bernstein.
Nestle shares were off 0.3 per cent at 56.60 Swiss
francs and Danone up 1 per cent at €53.61 by 1030 GMT.
WORLD NUMBER 5
The Pfizer business with its SMA Gold brand ranks as
world number five in the infant milk formula market – the
world’s fastest growing packaged food category – after Nestle,
Mead Johnson, Danone and Abbott Laboratories.
It is currently growing sales at 8 per cent a year and
has some 60 per cent of its revenue in Asia, 30 per cent in
Europe, largely in Britain, and some 10 per cent in Latin
America.
Over a quarter of its sales are in China, where the
US$6 billion market is expected to double by 2016 having grown
at more than 20 per cent over the last five years to feed 16
million new births a year. A Pfizer deal would push Nestle to
No 3 in the Chinese market behind Mead Johnson and Danone from
its current relatively small presence.
Nestle, whose main baby milk brand is NAN, is likely
to have to sell 25 per cent of the Pfizer unit’s sale by
disposing of interests in Latin America, south east Asia,
Australia and South Africa, which analysts say could be bought
by Danone or Heinz , although Bernstein’s Wood says the
sell-off figure could be as high as 35 per cent of annual
sales.
Danone has always declined any comment, but Riboud
said in February he was interested in acquisitions but did not
have the firepower for deals on the scale of its €12.3 billion
(RM49.68 billion) acquisition of baby food group Numico in
2007.
Mead Johnson share closed yesterday at US$83.61 giving
it a market capitalisation of around US$17 billion, making it
a potentially more expensive acquisition than Numico.
If Nestle pays US$10 billion for the Pfizer business
it would be on a similar 22 times multiple of core EBITDA
profit that Danone paid for Numico and ahead of the 15.7 times
Nestle paid for babyfood group Gerber in a US$5.5 billion deal
in 2007.
Yesterday, the Wall Street Journal reported that
Pfizer is near to selling the business to Nestle for at least
US$9 billion in a deal that could be announced as soon as next
week.
The auction is being run out of New York with Morgan
Stanley and Centerview Partners advising Pfizer.
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