Nestle to fund €9.1bn purchase of Pfizer’s baby-food unit with debt

Nestle plans to fund its $11.9bn (€9.1bn) acquisition of Pfizer’s baby-food unit with debt.

The purchase will help Nestle, already the top seller of infant-nutrition products, regain traction in the Chinese baby-food market, where it has been losing market share since 2005. The Pfizer unit gets about 85% of sales from emerging markets such as Asia, Africa and the Middle East.

Nestle said the acquisition will lead to annual cost benefits of €122m and will boost earnings per share in the first full year.

The Pfizer unit will increase Nestle’s sales of infant formula to €5.3bn a year from €3.8bn.

“The acquisition will be fully debt-financed, namely through internal cash resources and through the bond markets,” Chris Hogg, a spokesman for the Swiss-based food giant said. Mr Hogg declined to disclose details of the debt financing.

A debt-funded acquisition may put “some rating pressure” on Nestle, as its net debt could rise above the management’s target range of 15bn francs (€12.5bn) to 18bn francs (€15bn) for 2012 and 2013, Fitch Ratings said last week.

Fitch ranks Nestle at AA+, equivalent to Moody’s Investors Service’s Aa1 rating, while Standard & Poor’s grades it at AA.

Nestle has 7.4bn francs of bonds outstanding, including 1.8bn francs of securities due this year, according to Bloomberg.

Nestle’s €419m of 2.125% bonds due in 2014 yield 12 basis points less than the benchmark swap rate, down from as much as 31 basis points above the benchmark on Jan 26, Bloomberg Bond Trader prices show.

Nestle signed a €4.5bn 364-day credit line in October that pays interest of 10 basis points more than the euro interbank offered rate on drawn funds, according to data compiled by Bloomberg.