Pfizer Inc. (PFE:US) may select a buyer for its infant-nutrition unit as soon as next week after receiving bids from Nestle SA (NESN) and Danone SA (BN), according to people with knowledge of the matter.
Nestle and Danone each submitted final offers of about $10 billion for the business, said the people, who declined to be identified because the discussions are private. Other consumer companies and private-equity firms are also involved in the auction because they may alleviate the antitrust risk for the bidders, one person said yesterday.
Danone and Nestle have been working on ways to overcome antitrust hurdles, people familiar with the matter said in February. At that time, Nestle was considering buying all of Pfizer’s infant-nutrition assets (PFE:US) and then conducting an auction to sell what it can’t keep because of regulatory concerns it would become too dominant in some markets, one person said. Danone was weighing a joint bid with Mead Johnson Nutrition Co. (MJN:US), the people said then.
“This deal makes huge strategic sense for Nestle,” Andrew Wood, an analyst at Sanford C. Bernstein, wrote today in a note to clients. “It is in the right categories and the right markets and with a reasonable price we would expect a fairly positive reaction from investors.”
The companies’ talks with Pfizer could still break down and a deal may not be reached.
Danone has told outsiders it is unlikely to win the auction and Nestle may be the final bidder, said a person familiar with the matter. Pfizer has continued to speak to Danone and is trying to keep them in the process as bids are evaluated, the person said. A third bidder that was in the running is no longer in the auction, the person said.
Pfizer, based in New York, also is planning an initial public offering for its animal-health unit and has hired JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley to handle that sale, one person said. The Wall Street Journal reported earlier yesterday on Pfizer’s plans.
A spokesman for Nestle and a spokeswoman for Danone declined to comment today. Pfizer said in an e-mailed statement that no decisions have been made on the animal-health and infant-nutrition businesses, though a public transaction is most likely for the animal-health division. A Mead Johnson spokesman declined to comment.
Pfizer is divesting the businesses as Chief Executive Officer Ian Read shrinks the company and focuses on developing new medicines. Read is seeking to replace revenue lost to generic competition for Lipitor, the company’s top-selling drug whose U.S. patent protection ended in December.
Danone shares rose 0.9 percent to 53.54 euros as of 11:52 a.m. in Paris. Nestle fell 0.2 percent to 56.65 Swiss francs. The French company has also outperformed for the year, gaining 10 percent to Nestle’s 4.8 percent.
Pfizer shares were trading at $22.25 in Germany, down from $22.31 at yesterday’s close of New York trading. They have increased 10 percent since the company said on July 7 it would divest the two units.
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 in February.
China, where Pfizer generated (PFE:US) 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 International 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, people with knowledge of the figures said in February. Mead Johnson would likely have the largest, at about 20 percent or more, the people said.
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