Nestle has agreed a deal to acquire the infant nutrition business of US pharmaceuticals group Pfizer for US$11.85bn.

The sale of the business attracted competing bids from Nestle and Danone, as well as some private equity interest. 

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Announcing the acquisition this morning (23 April), Nestle said the Pfizer business was an “excellent” strategic fit with the company. 

Pfizer’s infant nutrition unit offers a “complementary portfolio” of “high-quality” brands, “pioneering” R&D capabilities and good access to emerging markets, with 85% of revenues generated in emerging markets, Nestle said.

Speaking during a conference call following the announcement, CFO Wan Ling Martello said the business has a “proven track-record of profitable growth”. Nestle estimated that the unit will generate sales of $2.4bn in 2012, up from $2.2bn last year and $1.9bn in 2010.

According to Martello, Pfizer Nutrition generated EBITDA of $500m in 2011, with an EBITDA margin of 25%. In 2012, Nestle estimates EBITDA will total $600m, again with an EBITDA margin of 25%.  

The acquisition price therefore represents 19.8x 2012 estimated EBITDA. Martello said that the acquisition would be funded through a combination of cash on hand and debt, insisting Nestle would maintain its “strong balance sheet”.

Management revealed Nestle expects to generate synergies totalling $160m over the next two to four years. 

Martello added the deal is expected to be accretive to earnings per share in the first full-year that it contributes to the company.  

Upon completion, Nestle’s portfolio of infant nutrition brands, such as Nan, Gerber and Lactogen, would include Pfizer’s brands like S-26 Gold, SMA and Promil. 

“The combined entities will enable us to deepen our engagement with consumers, offering them a wider choice of nutritious food to ensure their children make a healthy start to a healthy life,” Nestle CEO Paul Bulcke said. 

The deal is subject to regulatory approval.