Print | Share | Reprint

Pfizer garners $11.9B for nutrition unit

by Laura Board | Published April 23, 2012 at 10:28 AM

Switzerland's Nestlé SA Monday, April 23, triumphed in the bidding for Pfizer Inc.'s nutrition business with an above-forecast $11.85 billion bid apparently lodged after last-minute competition from another finalist, Groupe Danone SA.

The price is well above the valuation of up to $10 billion predicted in April 18 reports and appears to have risen after Danone reportedly increased its bid late last week.

The Vevey, Switzerland, buyer noted that it is acquiring a company with estimated 2012 sales of $2.4 billion and is paying a multiple of 19.8 times forecast 2012 Ebitda. That's close to the eye-catching 21.7 times forecast Ebitda Danone paid for Royal Numico NV in the bull market of 2007 and concern about the price pushed Nestlé shares down 3% Monday morning in Zurich.

But for Nestlé the purchase promises future growth that would have been unattainable before. Pfizer Nutrition has particular strength in high-margin premium brands and derives 85% of revenue from emerging markets. It is a major player in China, which is expected to account for 45% of growth in the infant-nutrition market over the next five years, said Nestlé, whose 145-year-old infant nutrition business is already strong in Latin America, the Middle East and Africa.

"Pfizer Nutrition complements ideally and builds on Nestlé's strong business already by being an exciting, high-growth, high-value business," CEO Paul Bulcke told a conference call.

The purchase should boost Nestlé earnings in the first full year, it said, and generate annualized cost synergies of $160 million by the third or fourth year. It expects integration costs of about $300 million.

For Pfizer, the disposal is a long-awaited and significant step toward chairman and CEO Ian Read's planned transformation of the company into a pure-play drugs business.

Pfizer said in July that it was considering selling both its animal health and nutrition businesses as part of its restructuring.

The sale of nutrition "is consistent with Pfizer's intention to generate the greatest value for shareholders by maximizing the value-creation potential of our businesses and prudently managing our capital allocation," said Read in a statement.

He said a return of the after-tax proceeds to shareholders is "our case to beat" as it assesses what to do with the funds.

The New York company has indicated an initial public offering remains the more likely disposal route for its animal health business but the heady valuation it has garnered for the nutrition business may encourage it to think again. Animal health reportedly attracted a $16 billion bid from Switzerland's Novartis AG as well as interest from Germany's Bayer AG.

In August Pfizer sold its Capsugel unit, which makes drugs in capsule form, to Kohlberg Kravis Roberts & Co. LP for $2.4 billion.

Pfizer Nutrition has operations in 60 countries and its $2.1 billion revenue in 2011 represented a year-on-year increase of 15%.

Around 90% of the Sfr7.2 billion ($7.83 billion) of revenue Nestlé derived last year from its nutrition unit came from infant nutrition. Nestlé group sales last year totaled Sfr83.6 billion.

Pfizer expects completion in the first half of next year, subject to regulatory clearances. The Swiss buyer may encounter antitrust issues in Latin America, where Danone is the most likely buyer of divested assets, as well as potentially in South Africa, and the Philippines, according to Kepler Capital Markets analyst Jon Cox.

Nestlé CEO Bulcke declined to comment on the antitrust outlook, saying it would be premature.

Nestlé shares were down 3% at Sfr55.40 by mid-morning in Zurich on Monday, giving the company a market value of Sfr182.8 billion.

Morgan Stanley and Centerview Partners LLC worked on the nutrition disposal for Pfizer.

A Skadden, Arps, Slate, Meagher & Flom LLP team led by Paul Schnell, Kenneth Wolff, Sally Thurston and Jose Estevez; Clifford Chance LLP; and DLA Piper LLP acted as legal counsel for Pfizer.

J.P. Morgan Chase & Co. is assisting Pfizer in evaluating options for animal health. Pfizer is reportedly using J.P. Morgan, Bank of America Merrill Lynch and Morgan Stanley for the potential animal health IPO.

Rothschild advised Nestlé on the Pfizer Nutrition purchase.

David Marcus contributed to this report.

Share:

Healthcare

Pfizer garners $11.9B for nutrition unit

Free preview

Meet the journalists

Laura Board

International Editor

Movers & Shakers

Video

Coming back for more

Sectors