Pharmaceutical company Pfizer Inc is close to selling its baby formula business to Swiss food group Nestle SA for at least $9 billion, a deal analysts said Wednesday will change the landscape of China's milk powder market and intensify foreign brands' hold on the high-end milk powder segment.
Nestle, the world's biggest packaged food company by market value, appears to have outstripped its rivals in the bid for Pfizer's Wyeth milk powder and the deal may be announced as soon as next week, the Wall Street Journal reported Tuesday.
The US drug company Pfizer put its infant nutrition businesses up for sale last July in a bid to focus on its core pharmaceutical business, according to earlier reports.
The deal of Wyeth has attracted huge interest from both foreign and Chinese companies and is closely watched by industry experts who believe the sale will change the rankings of foreign baby formula in China.
"Wyeth has advantage in high-end infant foods, a segment in which Nestle is weak. Buying in Wyeth will undoubtedly tighten Nestle's hold over the baby milk powder market," Song Liang, a dairy industry analyst at the Distribution Productivity Promotion Center of China Commerce, told the Global Times Wednesday.
Dumex, Mead Johnson, Nestle, Abbott and Wyeth dominate the high-end baby and infant milk powder market in China's first- and second-tier cities.
According to the latest figures from the State Information Center, Nestle has a 10.58 percent market share in China, only behind Dumex and Mead Johnson.
Wyeth, which has a 4.72 percent market share in China, can put Nestle on equal footing with Dumex, which has a 16.76 percent market share, insiders said.
Despite a sluggish demand in other markets, China still presents rapid growth and huge potential of milk powder consumption, with 16 to 20 million new births annually, according to data provider ocn.com.cn.
Domestic brands are facing increasing challenges from their foreign counterparts as more foreign brands are trying to gain a share of the growing market, dairy industry expert Wang Dingmian told the Global Times Wednesday.
More foreign brands are expected to rush into the world's largest milk powder market where consumers have low confidence in its domestic brands because of repeated milk powder scandals, Wang said. Besides, China has lowered its import tax on milk powder since January 1 this year.
Foreign giants already operating in the market are working hard to strengthen their presence. Nestle, for instance, said in January that it would spend 2.5 billion yuan ($397 million) to build a fresh milk supply base in Northeast China's Heilongjiang Province. Abbott announced last August to invest $230 million to build a nutrition producing plant in Jiaxing, Zhejiang Province.
Besides the first- and second-tier cities, "some foreign brands are scrambling into third-tier cities and researching products suitable for rural markets," Wang said, predicting that domestic brands will face a stiff competition for market share in future.