Drug giant Pfizer Inc. (PFE) on Monday agreed to sell its nutrition business to Nestle SA (NSTR.L, NSRGY.PK) for $11.85 billion in cash, culminating its review of strategic alternatives for the unit as part of its efforts to focus on its core business. Nestlé expects the acquisition to provide it with a strong foothold in emerging markets, and also anticipates accretive earnings and margins in the first full year of the deal.
The transaction, which is subject to regulatory approval and other closing conditions, would be completed by the first half of 2013.
Pfizer's Chairman and Chief Executive Officer Ian Read, who is restructuring the company to refocus it on biopharmaceuticals, said, "The sale of the Nutrition business to Nestlé 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."
Following the deal closure, Pfizer expects to allocate the proceeds to further share repurchases or invest in other business development opportunities.
Pfizer had said last year that it was divesting its infant nutrition business and animal health unit to focus on its core business. France's Danone SA (DANOY.PK) was also reportedly a bidder for the nutrition business. Pfizer is said to be planning an initial public offering for its animal health unit.
According to Nestle, the acquisition of the high-value infant nutrition business of Pfizer will allow them to combine brands like S-26 Gold, SMA and Promil with its existing portfolio of Nan, Gerber, Lactogen, Nestogen and Cerelac infant cereal.
Nestlé estimates the acquired business' 2012 sales would increase to $2.4 billion from fiscal 2011's $2.1 billion.
Commenting on Pfizer Nutrition, Nestlé CEO Paul Bulcke said, "Its strong brands and product portfolio ... together with its geographic presence - 85% of its sales are in emerging markets - will complement our existing infant nutrition business perfectly."
The acquisition would enable the Swiss food giant to expand its formula business worldwide with particular benefit in China. China is one major market where Nestle does not have a leading market share.
Baby food products market is estimated to have had a value of $40.8 billion last year. Sales of baby food products are expected to grow 6 percent between 2011 and 2016.
Pfizer said it will update its 2012 financial guidance to reflect the divestiture when it reports its first-quarter 2012 financial results on May 1. The company expects that all revenues and expenses related to the Nutrition business will be presented as discontinued operations, beginning with the second-quarter of 2012.
In January, Pfizer had trimmed its annual forecast, citing foreign exchange impact, after it reported that its fourth-quarter profit halved from last year hurt mainly by loss of patent exclusivity for its blockbuster cholesterol drug Lipitor and increased pricing pressures amid difficult market environment.
PFE settled on Friday at $22.56, up $0.23 or 1.01 percent, from the previous close.
Nestle closed lower by 0.17 percent in Zurich on Friday at 57.10 euros on a volume of 14.3 million shares.
by RTT Staff Writer
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