Mexican regulators block Nestlé-Pfizer deal

Mexico's antitrust agency said Tuesday it has rejected Nestlé SA's deal for Pfizer Inc.'s infant-nutrition business in Mexico, as it would give the Switzerland-based food company too big a share of the domestic market for baby formula, allowing it to raise prices.

The Federal Competition Commission, or CFC, said it voted 4-1 to reject the acquisition and the companies have 30 working days to appeal.

Nestlé outbid Groupe Danone SA in April to buy Pfizer's global infant-nutrition business for $11.85 billion.

The CFC determined the acquisition would give Nestlé 71% of the domestic market for so-called stage-one and -two formula and 88% of the market for stage-three formula.

It would allow Nestlé to raise prices of its different brands between 2.9% and 11.5%, also giving competitors room to raise their prices to a lesser extent, the CFC added.

The two companies proposed conditions that could be placed on the acquisition, but the commission said it considered the proposals insufficient to prevent the "real and considerable risks" to competition in that market.

Imports of formula into Mexico are negligible, and the market presents high entry barriers, including economies of scale, a complex system of promotion through contact with pediatricians and brand loyalty, the CFC said.

Nestlé said in an emailed statement that it won't give an opinion on the matter "while the authorization process in still underway" but that the company will continue working with the commission to address competition concerns.

The acquisition of Pfizer Nutrition is a strategic move to bolster Nestlé's world-wide positioning in the infant-nutrition segment, "especially in emerging markets," Nestlé said.

(Published by WSJ - November 20, 2012)