Nestlé’s €9bn Pfizer buy may face anti-trust trouble
Nestlé estimated its new division’s revenue would come in at $2.4bn (€1.83bn) this year, bringing combined infant formula sales to about $7bn (€5.33bn).
Credit Suisse analyst Alex Molloy said anti-trust authorities may take action in markets that affect about 25% of Pfizer Nutrition’s business. The global market for infant formula is estimated at about $30bn (€22.83bn).
"They may face anti-trust troubles that may force them to sell parts of the business,” Molloy said from Credit’s Suisse’s Zurich office.
Premature
Nestlé deputy head of corporate media relations, Chris Hogg, told NutraIngredients it was too early to comment on any anti-trust issues.
“The transaction is subject to regulatory approval in different jurisdictions,” said Hogg.
“It would therefore be premature to make any further comments at this stage. We have not made any comment about the global market share of the combined entity for the same reason. We first have to obtain the regulatory approval in different jurisdictions before commenting on issues like that.”
Such issues may arise in latin America, southeast Asia, Australia and South Africa, but any carve-up is unlikely to affect the $6bn (€4.57bn) Chinese market – the jewel in the crown.
Globally, infant nutrition is the fastest growing packaged food category, and Chinese infant formula growth is 20%. Pfizer has 8% of that market which is led by Mead Johnson with 16% and Danone with 14%. Nestlé had just 4% there.
With Chinese birth rates remaining high despite the one-child policy, the market is set to double to $12bn (€9.14bn) by 2016.
Little emperor
“People talk about the ‘little emperor’ complex where parents will only give their child the best which strengthens the proposition,” Molloy said.
"Even though the price Nestlé has paid is at the high end, the market has accepted the deal because of the fit with Nestlé strategy to expand into emerging markets.”
About 60% of Pfizer Nutrition’s sales were in Asia, with 47% of those in China.
“Other key markets in Asia include the Philippines, Thailand, and Indonesia,” Hogg observed.
Molloy said the 19.8 EBITDA multiple the €9bn sale represented was at the high end compared to other Nestlé acquisitions like Gerber (15.7) and Novartis Nutrition (17.6), but not outrageously high.
Competitive sector
Danone paid €12.3bn in 2007 for the Dutch baby food player Numico – coming in at a similar bid price-multiple ratio to Nestlé’s.
"Another aspect of this is the fact that Nestlé Nutrition has not performed as well as they would have liked but nutrition is a big part of their DNA. And it is a very healthy sector that is highly competitive with strong innovation from Danone and Mead Johnson."
Nestlé, Pfizer and Danone shares all remained relatively stable on the back of the news.
Pfizer, which has been shedding non-pharma operations, will be happy to receive a price substantially higher than market analysts expected to plough into its core operations.
It has not signalled whether the Danish food supplements business, Ferrosan, it acquired in an undisclosed deal in February 2011, will also be sold.
Its animal nutrition business however remains on-sale.
Complementary
Nestlé CEO Paul Bulcke would not comment on the anti-trust issues but said: “Infant nutrition has been at the heart of our company since it was founded in 1866. Pfizer Nutrition is an excellent strategic fit and this acquisition underlines our commitment to be the world's leading nutrition, health and wellness company.”
“Its strong brands and product portfolio, its talented people dedicated to the success of its business, together with its geographic presence - 85% of its sales are in emerging markets - will complement our existing infant nutrition business perfectly.”
Nestlé said it would combine the two portfolios that include the likes of Pfizer’s S-26 Gold, SMA and Promil and Nestlé’s Nan, Gerber, Lactogen, Nestogen and Cerelac.
“maximizing the value-creation potential”
Pfizer emphasised the good value of the deal and its worth to shareholders and the company’s corporate staregy.
“The sale of the Nutrition business to Nestlé is consistent with Pfizer’s intention to generate the greatest value for shareholders by maximising the value-creation potential of our businesses and prudently managing our capital allocation,” said Ian Read, Pfizer chairman and CEO.
“We remain focused on enhancing shareholder value and, following the completion of this divestiture, we expect to allocate the after-tax proceeds to further share repurchases, or invest in other business- development opportunities, with the return on share repurchases remaining our case to beat.”
“Bad news for babies”
UK-based breast-feeding advocates, Baby Milk Alliance, said the buy-out was, “bad news for babies”.
Campaigns and networking coordinator, Mike Brady, said the announcement showed, “exactly how the company undermines breastfeeding by suggesting mothers need Nestlé products to 'ensure their children make a healthy start to a healthy life'.”
“Children fed on formula are more likely to become sick than breastfed children and, in conditions of poverty more likely to die, which is why breastfeeding is the true health start."
