Sweet: Nestle's $11.85 Billion Pfizer Deal is Buying Growth in China

Sometimes a deal is just a deal.

And sometimes it's not.

Nestle's acquisition of Pfizer's infant nutrition business is an attempt to buy access to the demographic facts of life. Population in its traditional European and North American markets is plateauing. In the emerging markets of Asia, South America and South America, however, the baby business is booming. China alone would probably be worth the price, but adding the others sweetens the deal, as it were.

Given its core product categories, Nestle is in a position to graduate its consumers - and their parents - from infant formula to chocolates and related offerings. The cost of migrating a customer up your value chain is minimal versus having to reintroduce yourself to them and then attempt to make the sale all over again. Already a major force in this category, the acquisition seals its dominance.

Pfizer, which has struggled, benefits by having the cash to refocus its strategy from non-core areas to its central pharmaceuticals business. The efficient market theory chalks another win. JL

The Associated Press reports via Business Insider:

Swiss food and drink giant Nestle SA announced a deal Monday to acquire Pfizer Inc.'s infant-nutrition business for $11.85 billion in a bid to boost sales in emerging markets.

The company based in Vevey, Switzerland said the acquisition would "enhance its position in global infant nutrition" because 85 percent of the Pfizer Nutrition unit's sales is in emerging markets, many of which have large, fast-growing populations.

The deal would particularly help Nestle to boost growth in China and maintain its position as one of the world's largest sellers of infant formula. It is subject to regulatory approval, however, and Nestle, since it already sells so much infant formula, may face some antitrust hurdles to complete the deal.

Nestle's shares fell 3 percent to 55.30 Swiss francs ($60.71) after the Zurich exchange opened.

The maker of Nescafe, Haagen Dazs and Jenny Craig said it estimated that the Pfizer unit's 2012 sales would bring $2.4 billion.

"Infant nutrition has been at the heart of our company since it was founded in 1866," Nestle CEO Paul Bulcke said in a statement. "Pfizer Nutrition is an excellent strategic fit and this acquisition underlines our commitment to be the world's leading nutrition, health and wellness company."

Nestle's offer beat a rival joint bid by Groupe Danone and Mead Johnson Nutrition Co. for the infant-nutrition business, which Pfizer had put up for sale last July along with a separate animal-health business unit.

Pfizer, the world's largest drug maker, has been shedding its noncore businesses as it moves to focus on developing new prescription drugs. Last year it suffered the patent expiry of blockbuster drug Lipitor, the cholesterol fighter.

It also sold its business unit that makes drugs in capsule forms to KKR & Co. last August for $2.4 billion.

Nestle forecast Friday that 2012 will be a challenging year but reported that first-quarter sales rose a healthy 5.6 percent from a year earlier, fueled by strong growth in emerging markets and higher retail prices.

"The takeover affirms Nestle's worldwide No. 1 position in one of the most attractive growth markets," said bank analyst Patrik Schwendimann of Zuercher Kantonalbank. "One positive side effect is that speculation about large acquisitions by Nestle will calm down for the foreseeable future."