Pfizer CEO, Ian Read
Nestle SA (NESN) agreed to buy Pfizer Inc. (PFE)’s Nutrition unit for $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 Monday. 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 $42.2 billion market for baby-food products in 2011, according to data from Euromonitor International, according to Bloomberg report.
“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. “From a long-term perspective, it makes strategic sense as it will really strengthen Nestle’s position in Asia.”
The sale will be Pfizer’s largest divestiture since the $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 Officer 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 (BN) SA, people knowledge of the deal said last week.
Infant Nutrition Benefits
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 website, and accounted for 3.2 percent of the company’s 2011 revenue. Pfizer gained the formula division through its $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. (MJN), Danone, and Abbott Laboratories, according to Euromonitor. Its market positions are strongest in the Middle East and Africa, and in the Asia-Pacific region, where Pfizer’s unit is the third- and fourth-largest respectively, said Lee Linthicum a London-based analyst with the researcher.
Global sales of baby-food products are likely to gain 6 percent a year from 2011 to 2016, helped by low private-label penetration and the importance of infant nutrition to consumers, according to Euromonitor.
The sale is the largest for a nutrition business of 77 deals in the last three years, according to data compiled by Bloomberg. The next largest was when Bristol-Myers Squibb Co. split off its majority stake in Mead Johnson in 2009, leaving the food company with a $8.94 billion market capitalization at the end of that year.
A sale may raise antitrust concerns in Australia and some Latin American markets, Credit Suisse Group AG analysts Robert Moskow and Marcela Giraldo wrote in an April 18 report.
“This could lead to a forced sale, which would benefit the companies that are looking to expand in those regions,” they said.
A 13 percent increase in first-quarter international sales at Abbott’s pediatric nutritionals business, spurred by demand in emerging markets, “increase our confidence that infant nutrition category trends in emerging markets have not slowed down,” they said.
In addition to the infant nutrition business, Read is also spinning off Pfizer’s animal-health unit, which had $4.18 billion in 2011 revenue. The drugmaker is planning an initial public offering for the unit and has hired JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley to handle that deal, a person with knowledge of the matter said.