Pfizer Inc. is
expected to announce on Monday it has reached a deal to sell its baby food
business to Nestlé SA for more than $10 billion, according to people familiar
with the matter.
The Swiss food
giant beat rival Groupe Danone SA BN.FR -3.55% for the Pfizer unit after a months-long auction.
Pfizer said in July it would divest the infant-nutrition business as well as an
animal-health unit, seeking to focus on its core drugs business.
Nestlé is the
leading seller of milk formula for babies, with a 17% share of the $27 billion
world-wide market in 2010, followed by Mead Johnson with 15% and Danone with
13%, according to the most recent data from Euromonitor International, a
market-research firm. For Nestlé, the purchase of Pfizer's infant formula
business is a way to build its presence in China, one of the largest markets
for such products, a person familiar with the matter said.
China is one of the few major markets where Nestlé doesn't
have a leading share. In 2010, Nestlé had the eighth-largest share, with 2.3%
of China's
$7.5 billion baby formula market, according to Euromonitor International. By
contrast, Pfizer had a 7.4% share, No. 5 in China. Together, the companies
would be No. 3 in the market, behind Mead Johnson with a 11.7% share and Danone
with a 9.8% share.
To win approval
from antitrust regulators, Nestlé would likely have to divest assets in certain
markets where it has a dominant position, according to the people familiar with
the matter. The magnitude of any such sales is unclear, and would depend on
regulatory authorities in countries where it has a big market share. Nestlé
would be prepared to sell assets if necessary, one of the people said.
Pfizer's nutrition
unit is among the company's most rapidly expanding businesses, with sales
rising 15% last year to $2.1 billion. Yet the unit is also among Pfizer's
smallest—the company had $67.4 billion in 2011 revenue—and it lies outside the
drug maker's core business selling prescription medicines.
The company, the
world's largest drug maker by sales, has been shedding businesses outside its
core medicine franchise in part to boost its shares. Last August, it sold its
Capsugel unit, which makes drugs in capsule form, to private-equity firm KKR
KKR -1.40% &
Co. for $2.4 billion. Some investors have
clamored for the sale of even more units, such as its over-the-counter business
that sells Advil cold-and-pain medicine and other consumer-health products.