Danone SA (BN) and Nestle SA (NESN), vying to buy Pfizer Inc. (PFE)’s infant-nutrition unit, are working on ways to overcome antitrust hurdles after submitting preliminary bids of about $10 billion, said two people with knowledge of the matter.
Nestle is considering buying all of Pfizer’s infant- nutrition assets and then conducting an auction to sell what it can’t keep because of regulatory concerns it would become too dominant in some markets, said one of the people, who declined to be identified because the process is confidential. Danone is weighing a joint bid with Mead Johnson Nutrition Co. (MJN) and may split the business along geographies or brands, said the people.
Danone, owner of the Bledina brand formula, and Nestle, maker of Gerber baby food, may present plans to Pfizer in the coming weeks, said the people. The companies, two of Europe’s biggest foodmakers, are seeking to expand in infant nutrition, where growth has outpaced other parts of the industry.
Either buyer would be asking regulators to approve a deal after regulatory scrutiny ended some of 2011’s biggest transactions. European antitrust authorities stymied Deutsche Boerse AG (DB1)’s planned combination with NYSE Euronext, while the U.S. Department of Justice sued to block AT&T Inc.’s $39 billion purchase of T-Mobile USA. (DTE)
Pfizer, the world’s biggest drugmaker, hasn’t made a decision on the nutrition business, which had revenue of $2.14 billion last year, said Joan Campion, a spokeswoman for the New York-based company. Pfizer is in the process of exploring options for the unit, which include a sale, spinoff or other transaction, she said.
A spokesman for Nestle declined to comment on the process, as did a spokeswoman for Paris-based Danone.
Pfizer shares declined less than 1 percent to $21.19 at the close in New York yesterday. The company gained 9.4 percent in the past 12 months.
Danone said this week its baby-food revenue last year rose 11 percent to 3.67 billion euros ($4.8 billion) on a comparable basis, helping drive total sales growth. Revenue from Nestle’s nutrition business, excluding acquisitions, disposals and currency shifts, advanced 7.3 percent to 7.2 billion Swiss francs ($7.9 billion), the company said this week. Infant nutrition accounted for about 90 percent of the unit’s sales, Nestle said.
H.J. Heinz (HNZ) Co., as well as other rival food companies and regional players, may seek to acquire assets from Nestle in countries where the Vevey, Switzerland-based company could run into regulatory snags, the people said. While Pittsburgh-based Heinz had considered bidding for the entire Pfizer unit, it is now more focused on buying only parts, said one of these people.
A spokesman for Heinz declined to comment.
Nestle may face antitrust issues in more than a dozen countries, while Danone would have hurdles in key markets including the U.K., the people said.
China, where Pfizer generated about 29 percent of its 2010 infant-nutrition revenue, is a country where local regulators will scrutinize any bid, one person said. China’s baby-food market will probably expand by about 17 percent a year from 2010 to 2015, Euromonitor estimated last year.
Buying Pfizer’s business would give Nestle about 10 percent of the infant milk formula market in China, while a Danone purchase may create a company with at least a 17 percent share, according to people with knowledge of the figures. Mead Johnson would likely have the largest, at about 20 percent or more, the people said.
As part of its plan, Danone may propose that Mead take over brands such as Pfizer’s SMA line of products, one of the people said. Danone may also seek to join with Mead to make it easier for the company to line up the needed financing and spread the risk of taking on too much debt. Typically to make a joint bid, the seller must give approval for bidders to work together.
Pfizer gained the formula division through its $68 billion purchase of Wyeth in 2009. 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’s Campion said the company expects to announce a decision on the process in 2012 and complete any transaction from July 2012 to July 2013.
Pfizer is shedding its animal health and nutrition businesses as part of Chief Executive Officer Ian Read’s plan to focus on developing new prescription drugs after losing patent protection for Lipitor, a cholesterol pill and the world’s best- selling medicine. The divestitures are “on track,” he said in a Jan. 31 earnings conference call.
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