Tue, Apr 24, 2012 - Page 10 News List

Nestle to purchase Pfizer baby food unit

VALUATIONS:An analyst estimated that at 22 times the unit’s EBITDA, the Nutrition deal looks pricey, but it would benefit Nestle strategically over the long term


Nestle SA agreed to buy Pfizer Inc’s Nutrition unit for US$11.9 billion, expanding its business selling infant formula in emerging markets.

The purchase will boost earnings per share in the first full year, the Vevey, Switzerland-based company said in a statement yesterday.

About 85 percent of the unit’s sales come from emerging markets, Nestle added.

The purchase will help Nestle, already the top seller of infant-nutrition products, regain traction in the Chinese baby food market. Nestle has been losing market share there since 2005, when it withdrew two varieties of Neslac milk powder because authorities found they contained excessive iodine. The Asia-Pacific region accounted for 43 percent of the US$42.2 billion market for baby food products last year, according to data from Euromonitor International.

“It looks pretty pricey,” said Jon Cox, an analyst at Kepler Capital Markets in Zurich.

He estimates the price is about 22 times the unit’s earnings before interest, tax, depreciation and amortization (EBITDA).

However, “from a long-term perspective, it makes strategic sense as it will really strengthen Nestle’s position in Asia,” Cox added.

The sale will be Pfizer’s largest divestiture since the US$16.6 billion sale of consumer health brands — including Sudafed cold medicine and Bengay pain cream to Johnson & Johnson in 2006.

It is the first of two major exits that Pfizer chief executive Ian Read outlined to shrink the New York-based company and concentrate on producing new drugs. Pfizer was close to choosing between bids from Nestle and Danone SA, people with knowledge of the deal said last week.

Pfizer’s business includes infant formulas such as SMA and Promil. The unit, which also makes Enercal supplements for adults, offers products in more than 60 countries, according to its Web site, and accounted for 3.2 percent of the company’s revenue last year. Pfizer gained the formula division through its US$68 billion purchase of Wyeth in 2009.

Pfizer had the fifth-largest global market share of the infant formula business in 2010, trailing Nestle, Mead-Johnson Nutrition Co, Danone and Abbott Laboratories, according to Euromonitor.

Its market positions are strongest in the Middle East and Africa where it ranks third and Asia-Pacific region where it ranks fourth, Euromonitor analyst Lee Linthicum said.

In addition to the infant nutrition business, Read is spinning off Pfizer’s animal-health unit, which had US$4.18 billion in revenue last year.

The drugmaker is planning an initial public offering for the unit, a person with knowledge of the matter said.

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