Bloomberg News

Mengniu Dairy Said to Consider Bid for Pfizer Baby Food Unit

October 24, 2011

(Updates with Mengniu comments in second, sixth paragraphs.)

Oct. 24 (Bloomberg) -- China Mengniu Dairy Co., the nation’s biggest dairy company, may bid for Pfizer Inc.’s infant-nutrition business, two people with knowledge of the matter said.

Mengniu’s consideration of a potential bid is at an early stage, the people said, asking not to be identified because the information is private. The company won’t decide whether to proceed until more financial data on the unit is available, one of the people said. Mengniu said in a stock-exchange filing today that it isn’t “in any direct negotiation” with Pfizer.

The infant-nutrition business may fetch as much as $10.5 billion, and draw interest from companies including Danone, Abbott Laboratories and Nestle SA, people familiar with the transaction said in July. Mengniu’s market value is just over half that amount, and shares in the cheese and milk producer fell today after its interest was reported.

“The deal size for the whole global division is really a bit big,” said Jacqueline Ko, an analyst with Kim Eng Securities. “I wonder if they can just buy the China part of the business.”

Ice Cream

Trupti Wagh, a Pfizer spokeswoman in Singapore declined to comment on market speculation.

Mengniu said it will “closely monitor” developments related to a bid for the Pfizer unit. “The company is not in any direct negotiation with Pfizer, and currently has no concrete arrangement or plan in connection with the bid,” the Chinese milk producer said in its statement.

Mengniu’s products include liquid milk products, ice cream, and milk powder. Milk powder contributed less than 1 percent of the company’s revenue in 2010, according to data compiled by Bloomberg.

The company’s largest shareholder is a unit of Cofco Ltd., a state-backed grains trader which said on Oct. 20 that it is seeking overseas acquisitions to help secure food supplies for China. Through a special purpose vehicle, Cofco and Hopu Investment Management Co. own 20 percent of Mengniu.

Mengniu fell 1.7 percent to HK$25.75 at the 4 p.m. close of trading in Hong Kong. Its market value is about HK$45 billion ($5.8 billion), and the company had about $1 billion in cash and short-term securities at the end of June, according to data compiled by Bloomberg.

SMA Gold

“Investors may be concerned that Mengniu may have to issue new shares to fund the bid and that would dilute per share earnings,” Jason Yuan, an analyst at UOB Kay Hian Holdings Ltd. in Shanghai.

The infant-nutrition unit, which makes the SMA Gold line of products for infants and children, reported $1.9 billion in sales last year. About 60 percent of those were from Asia, with another 30 percent from Europe, according to Credit Suisse.

Pfizer is looking for “strategic alternatives” for the unit that may also include a spinoff, said Wagh, repeating comments the company made in July. The company may send sales documents to suitors in November at the earliest, people with knowledge of the matter said last month.

The Financial Times earlier reported Mengniu’s interest in the unit.

--With assistance from Jason Gale in Singapore and Michael Wei in Shanghai. Editors: Mohammed Hadi, Frank Longid

To contact the reporters on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net; Natasha Khan in Hong Kong at nkhan51@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net


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