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There’s one born every minute – or that, at least, is what Nestlé’s latest acquisition implies. The Swiss food group is paying a hefty $12bn for Pfizer’s infant nutrition business. At first that looks a rich price for the US pharmaceutical group’s Pfizer Nutrition unit, which makes milk formula. But then, 85 per cent of its sales are to emerging markets. And Nestlé knows that the latter account for almost three-quarters of the $30bn global baby food market, which is growing at about 10 per cent a year. China is expected to account for almost half that growth. Asia does make the deal compelling. Even so, it is hard to escape the impression that Pfizer has somehow injected some Viagra into the deal.
Even shares in Danone, which had reconnoitred Pfizer Nutrition, rose after the French group was pipped by Nestlé. At nearly 20 times estimated 2012 earnings before interest, tax, depreciation and amortisation of $600m, the Swiss group’s outlay is at the higher end of the 16-22 times ebitda range paid on recent nutrition acquisitions, Credit Suisse data show. True, that could fall to a more palatable 16 times if Nestlé achieves its touted $160m of full-year cost synergies.
Looked at another way, however, businesses focused purely on baby nutrition are solid growers and command a strong following. Take Mead Johnson Nutrition in the US, spun off by Bristol-Myers Squibb. Its sales and earnings grew 14 per cent and 15 per cent, respectively, in 2011, and its shares trade on 26 times forward earnings. And, given the valuations of nutritionals, it is little wonder that Abbott Laboratories should want to split itself into healthcare and pharmaceuticals companies.
At least for Pfizer investors, bracing themselves for the group’s looming patent cliff, value creation is more clear-cut. Pfizer Nutrition is the smaller of two disposals heralded by the group since selling its consumer health brands to Johnson & Johnson for $16.6bn. The next will be its animal health business. And the proceeds will primarily flow into share buybacks.
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