Nestlé awaits ruling on Pfizer baby nutrition bid

Nompumelelo Magwaza

Infant milk formula manufacturers and distributors Nestlé and Pfizer will learn today whether the Competition Tribunal will approve, with conditions, the former’s planned takeover of the latter’s baby nutrition division, a deal that could increase the prices of the products.

According to both companies, the deal has been filed in 15 countries worldwide and has been cleared in 10 of those.

In South Africa, the Competition Commission has recommended that the Competition Tribunal rule that some of the baby products be rebranded.

Locally, Pfizer currently trades infant milk formula under the S-26, S-26 Gold, Infasoy and Centrum Materna brands, among other products. Nestlé trades under baby formula brands such as NAN, Lactogen, Nespray, Nestum and Cerelac.

Both companies are listed on the SIX Swiss Exchange and Pfizer is also listed in New York and London and on Euronext in Amsterdam.

Internationally, Nicaragua and Colombia are yet to issue their decisions, while the Australian competition authority has approved the merger with conditions. However, Mexico’s competition authority prohibited the transaction and rejected the re-branding remedy proposed by the parties.

In South Africa, the commission said that a merger of the Nestlé and Pfizer divisions would have a significant share of the milk formula market. It said, having carried out a merger simulation exercise, the commission was concerned that the new merged company could increase the price of infant milk formula.

Competitors of the merging parties have also indicated that the proposed deal raised serious competition concerns.

However, Nestlé believes that the deal will allow it to expand its presence in a number of markets where it already operates and new emerging markets where the population is growing fast.

To overcome competition concerns, the South African authority has recommended a transitional re-branding remedy lasting two consecutive 10-year periods during which time Nestlé will license out the existing Pfizer products for sale under different brand names to an independent licensee.

After the 20-year period, Nestlé may re-introduce Pfizer brands with their original branding into the market. The commission believes that this transitional re-branding remedy has benefits which a permanent divestiture lacks and which outweighs the inherent risks normally associated with re-branding.

Last year, the Department of Health finalised its regulations for the way infant formula milk is promoted, banning pictures of bottle-fed babies and making it illegal for companies to make negative claims about breastfeeding.

According to the Foods, Cosmetics and Disinfectants Act, a container of a product shall not show graphic representation, apart from those necessary to show the correct method of preparing and using the product.