Nestle-Pfizer deal approved in China

Nestle's purchase of Pfizer Inc's infant formula unit has won approval from China's Ministry of Commerce (MOFCOM), Nestle told the Global Times Monday.

In April, the Swiss food group said it would buy Wyeth, the baby food business owned by US drug maker Pfizer, for $11.85 billion. This unit will be combined with Nestle's existing infant formula business.

According to China's Anti-monopoly Law, their combined businesses in China had to undergo MOFCOM's antitrust review, in case the acquisition enabled Nestle to overwhelmingly dominate the domestic infant formula market, He Tong, public relations manager of Nestle China, told the Global Times Monday.

No official announcement about the review could be found on MOFCOM's website, which experts said is a sign that the approval was unconditional and Nestle can consolidate Wyeth's baby food business in China.

"There was no doubt this purchase would get approved in China, as the combined businesses would account for far less than 50 percent of the domestic infant formula market, the boundary stipulated by China's Anti-monopoly Law," Yan Qiang, an analyst of Adfaith Management Consulting, told the Global Times Monday.

"This transaction still awaits review by authorities from other countries. Therefore, we refuse to make any comments at this stage," Nestle's He said.

When the deal is complete, Nestle may lead China's high-end infant formula market by surpassing its French rival Danone's Dumex in market shares, Yan said, noting that Nestle-Wyeth's combined market share currently reached 20 percent or more while around 18 percent went to Dumex, once the leader of this sector in China.

The acquisition of the higher-end Wyeth will supplement Nestle's product line and help raise the selling prices of its baby food products over rivals like Dumex, but will have little impact on the domestic infant formula brands which mainly run the low- and mid-end market, Yan noted.

Many overseas infant formula brands have raised prices every quarter this year, resulting in profit margins reaching 70 or even 80 percent, compared with domestic brands' 40 to 50 percent, according to China's leading industry consultancy Zero Power Intelligence, on June 15.

"Even though foreign milk powder brands keep increasing their selling prices, we still have to buy from them, since our babies may not get used to domestic products, which are believed to be less safe and nutritional than the foreign ones since the melamine scandal erupted among the domestic dairies in 2008," said a Beijing resident, surnamed Zhao.

The vigorous domestic demand for foreign brands will sustain the trend of overseas infant formula producers increasing their prices, Zhao Yong, a dairy analyst with Haitong Securities, told the Global Times.