Heinz Eyes Pfizer's Baby Food

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Reportedly, H.J. Heinz Company (HNZ) is keen on the baby food morsel business of Pfizer Inc. (PFE) and may buy it if the terms of the deal are favorable.

The pharmaceutical-giant, Pfizer is planning to shed its animal health and infant nutrition divisions. Industry analysts feel that the infant nutrition business – accounting for $2 billion sales to the company – will be up for sale with a price tag of $10 billion. The pharmaceutical giant wants to slim down in order to bolster its core strengths for the drug conglomerate.

Two European-based food companies, Danone and Nestle, have put in first-round bids of about $10 billion for the infant-nutrition unit, according to Bloomberg News.

Pfizer Nutrition, a leader in infant and pediatric nutrition, acquired the business through its $68 billion takeover of Wyeth less than two years ago. It also produces vitamins for pregnant women.

In July 2011, Pfizer announced plans to sell or spin off its animal and nutrition units. At the time, the company said it was considering options including, among others, a full or partial separation of each of these businesses through a spin-off, sale or other transaction. Given the separate and distinct nature of Animal Health and Nutrition, the company said it might pursue a different strategic alternative for each business.
 
This Nutrition business has operations in six continents, products available in more than 60 countries, and a focused presence in key markets throughout Asia, the Middle East, Europe and Latin America, with China, Philippines, United Kingdom, Mexico and Australia being among its top markets. Nutrition generated revenues of nearly $2 billion in 2010.

However, in another report, Heinz has revealed that it is not interested in buying the infant food business completely. Instead, analysts feel that Heinz will pick up pieces of the infant business, which the winner of the bid will be compelled to discard owing to regulations imposed by the competition watchdogs. They also feel that Heinz will be keen on buying the Latin American unit of the business.

The baby food business of Pfizer will be a good fit for Heinz, as though Heinz is mostly known for its sauce and ketchup; it has the world’s sixth largest infant nutrition business.

Currently, we prefer to rate the stock as Neutral. Heinz holds the Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.

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