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| Clermont Meridian Trading Reports Nestle Agrees $11.9bn Deal For Pfizer’s Infant Nutrition Unit |
Clermont Meridian Trading has reported that Swiss food giant Nestlé has agreed on an $11.9bn deal to buy Pfizer’s infant nutrition business in its biggest-ever acquisition.
George Willis, Senior Vice President of Equity Trading at Clermont Meridian explained, “The deal will expose Nestlé to emerging markets such as China and Saudi Arabia while allowing Pfizer to focus its attention on developing new prescription drugs. The Pfizer unit currently generates 85% of its revenue from emerging economies.”
The combined company will have a 10% market share in the Chinese baby food market and a 38% hold in the Middle East and Africa.
Nestlé chief executive, Paul Bulcke, described Pfizer Nutrition as “an excellent strategic fit” and said, “this acquisition underlines our commitment to being the world’s leading nutrition, health, and wellness company.”
The buyout is yet to receive regulatory approval but is just one of several recent deals in the healthcare sector. SXC Health Solutions agreed to a $4.4bn buyout of Catalyst Health Solutions last week, and UK drug manufacturer GlaxoSmithKline announced an unsolicited bid for Human Genome Sciences of $2.59bn.
Nestlé won in a bidding war with French rival Danone, according to sources close to the deal, with both European giants battling it out until late last week. Once Nestlé emerged as the likely winner, Pfizer pushed to finalize the agreement by the weekend.
Due to the size of the Pfizer unit, Nestlé’ may be forced to sell some of its businesses to gain regulatory approval, particularly in Latin America owing to antitrust issues. The company has declined to comment on those concerns.
Nestlé says it is paying 19.8 times the estimated 2012 pre-tax profits for the Pfizer unit - a significantly higher fee than any previous deals in the sector. According to Citigroup estimates, the company paid 15.7 times Gerbers’ pre-tax profits to acquire the baby food brand in 2007 at the cost of $5.5bn.
Nestlé’s stock, not adjusted for lost dividend rights, was down 2.8% at the close of trading in Zurich on Monday.
The price paid surprised even Pfizer and its advisers. Analysts generally agree that Nestlé was willing to pay a high premium to gain greater access to emerging markets. The global market for baby food was expected to grow by 10% per annum until 2016. The majority of growth is expected to come from developing markets.
“The deal sees the total value of takeovers in the food and beverage industry hit $28bn so far this year. That figure is 33% down on the same period last year,” concluded Willis of Clermont Meridian Trading.
Last year, the Pfizer unit recorded revenue of around $2.1bn, representing a year-on-year increase of 15%. Nestlé expects the unit to generate revenue of $2.4bn this year. The deal is expected to close by June 2013 and will see Pfizer offload the nutrition business it acquired in 2009 when it bought out Wyeth for $68bn. Last year, Pfizer sold another unit that makes capsule covers to Kohlberg Kravis Roberts in a deal worth in the region of $2.4bn.
Nestlé hopes to make annual savings of around $160m within four years of the closed deal. Merger costs are expected to run to about $300m.
The deal is yet to receive regulatory approval.
Morgan Stanley, Centerview Partners, and the law firms Skadden, Arps, Slate, Meagher & Flom, Clifford Chance, and DLA Piper advised Pfizer on the deal. Rothschild and the law firm Mayer Brown advised Nestlé.