Mengniu Dairy Said to Consider Bid for Pfizer Baby Food Unit
China Mengniu Dairy Co., the nations biggest dairy company, may bid for Pfizer Inc. (PFE)s infant-nutrition business, two people with knowledge of the matter said.
Mengnius consideration of a potential bid is at an early stage, the people said, asking not to be identified because the information is private. The company wont decide whether to proceed until more financial data on the unit is available, one of the people said. Mengniu said in a stock-exchange filing today that it isnt in any direct negotiation with Pfizer.
The infant-nutrition business may fetch as much as $10.5 billion, and draw interest from companies including Danone (BN), Abbott Laboratories (ABT) and Nestle SA (NESN), people familiar with the transaction said in July. Mengnius market value is just over half that amount, and shares in the cheese and milk producer fell today after its interest was reported.
The deal size for the whole global division is really a bit big, said Jacqueline Ko, an analyst with Kim Eng Securities. I wonder if they can just buy the China part of the business.
Ice Cream
Trupti Wagh, a Pfizer spokeswoman in Singapore declined to comment on market speculation.
Mengniu said it will closely monitor developments related to a bid for the Pfizer unit. The company is not in any direct negotiation with Pfizer, and currently has no concrete arrangement or plan in connection with the bid, the Chinese milk producer said in its statement.
Mengnius products include liquid milk products, ice cre! am, and milk powder. Milk powder contributed less than 1 percent of the companys revenue in 2010, according to data compiled by Bloomberg.
The companys largest shareholder is a unit of Cofco Ltd., a state-backed grains trader which said on Oct. 20 that it is seeking overseas acquisitions to help secure food supplies for China. Through a special purpose vehicle, Cofco and Hopu Investment Management Co. own 20 percent of Mengniu.
SMA Gold
Investors may be concerned that Mengniu may have to issue new shares to fund the bid and that would dilute per share earnings, Jason Yuan, an analyst at UOB Kay Hian Holdings Ltd. in Shanghai.
The infant-nutrition unit, which makes the SMA Gold line of products for infants and children, reported $1.9 billion in sales last year. About 60 percent of those were from Asia, with another 30 percent from Europe, according to Credit Suisse.
Pfizer is looking for strategic alternatives for the unit that may also include a spinoff, said Wagh, repeating comments the company made in July. The company may send sales documents to suitors in November at the earliest, people with knowledge of the matter said last month.
The Financial Times earlier reported Mengnius interest in the unit.
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