Nestle to buy Pfizer's infant nutrition unit for $11.9bn

The Swiss food giant Nestlé agreed on Monday to buy Pfizer's infant nutrition business for $11.9 billion in a move to expand the company's presence in the global baby food market.

The deal will help Nestlé tap into the growth of the emerging markets. Nestlé, which already has a large infant nutrition business in Latin America, will add operations in the Asia-Pacific region and the Middle East. Pfizer's nutrition business currently generates 85 percent of its revenue from emerging markets.

"Pfizer Nutrition is an excellent strategic fit, and this acquisition underlines our commitment to be the world's leading nutrition, health and wellness company," Nestlé's chief executive, Paul Bulcke, said in a statement.

Nestlé's share price fell 2.71 percent in late morning trading in Zurich.

Under the terms of the deal, Nestlé, which outmuscled Danone, will pay cash for the Pfizer unit. The group was put up for sale in July along with the Pfizer's animal health business as the pharmaceutical company looked to focus on its core drug-making operations.

Nestlé said it expected $160 million of annual cost savings by the fourth year after the deal closed, adding that implementation costs would be approximately $300 million. The company said it would pay for the deal through cash reserves and existing credit facilities.

Nestlé said it was paying 19.8 times the Pfizer unit's estimated pretax profit for 2012. That compares with 10 to 12 times for other recent acquisitions in the food industry, according Jon Cox, an analyst at Kepler Capital Markets in Zurich.

"The company is paying a strategic price to get the deal done," Mr. Cox said. "In the long term, it makes sense for Nestlé to buy the business. It looks pricey, but it gives them greater exposure to the fast-growing Asian markets."

Last year, the Pfizer unit reported revenue of approximately $2.1 billion, a 15 percent increase compared with that of 2010. Nestlé said it expected the unit to generate revenue of $2.4 billion this year.

The nutrition unit is big enough that the deal will present some tough antitrust challenges for Nestlé, which could mean it may have to make some divestitures to win regulatory approval.

The transaction also will allow Pfizer to offload the nutrition business that it acquired through its $68 billion takeover of Wyeth in 2009. Last spring, Pfizer also sold a division that makes capsule coatings for drugs to Kohlberg Kravis Roberts for about $2.4 billion.

"The sale of the nutrition business to Nestlé is consistent with Pfizer's intention to generate the greatest value for shareholders by maximizing the value-creation potential of our businesses and prudently managing our capital allocation," Pfizer's chief executive, Ian Read, said in a statement.

The transaction is expected to close by June 2013, pending regulatory approval.

Morgan Stanley, Centerview Advisors and the law firms Skadden, Arps, Slate, Meagher & Flom, Clifford Chance and DLA Piper advised Pfizer on the deal, while Rothschild advised Nestlé.

(Published by NY Times - April 23, 2012)