Formula won

23 April 2012 By Quentin Webb

The Swiss food giant is paying a hefty 4.9 times sales for the U.S. group’s infant nutrition arm. That’s partly down to an M&A tug-of-war with rival Danone. But it also reflects Nestle’s rock-solid balance sheet – and the scarcity of big emerging-market growth plays.

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Nestle said on April 23 it would buy the infant nutrition business of U.S. drugmaker Pfizer for $11.85 billion in cash. Nestle expects Pfizer Nutrition, which makes 85 percent of its sales in emerging markets, to record about $2.4 billion in revenue this year, generating EBITDA of about $600 million. Pfizer said it expects the deal to close by the first half of 2013.
Nestle beat French rival Danone, paying more than suggested by initial reports, which estimated the business could fetch $9 to $10 billion. On April 20 French website Wansquare reported Danone, working with U.S. partner Mead Johnson, had raised its bid to nearly $11 billion.
Nestle, the world’s biggest food group, said it would fund the purchase through cash and additional debt. The transaction values Pfizer Nutrition at 19.8 times 2012 estimated EBITDA, or 15.6 times after cost synergies. Nestle expects annual cost savings to reach $160 million in 3 to 4 years.
Shares in Nestle, which also went ex-dividend, were down 2.5 percent at 1200 GMT on April 23 at 55.65 Swiss francs. Danone shares were up 1.66 percent at 53.30 euros.

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