Swiss food group Nestle is to buy US drugmaker Pfizer's infant nutrition business for $11.85bn (£7.35bn), beating out French rival Danone in the battle to gain preeminence in the lucrative baby food market.
Nestle, the world's biggest food company, was already seen as a favoured bidder due largely to its deep pockets, and is paying for the acquisition in cash.
The fight for the unit had intensified last week, with the price escalating sharply from bids around $10 billion after Danone was reported to have raised its offer on Friday.
"The deal makes strategic sense, it really was Nestle's deal to lose as it very much wanted to add to its Asian business and boost growth and margins," said Kepler analyst Jon Cox.
"The price being paid seems quite high, by my calculations it's at 22 times core earnings, almost as high as Danone's infamous 2007 acquisition of Numico."
Danone paid 12.3 billion euros in 2007 for Dutch food group Numico, at the time Europe's largest baby food producer, paying a similar multiple, a price many analysts said was too high.
This acquisition, which is subject to regulatory approval, is expected to close in mid 2013 and will help Nestle extend its lead in the infant formula market.
The Pfizer business with its SMA Gold brand ranks as world number five in the infant milk formula market - the world's fastest growing packaged food category - after Nestle, Mead Johnson, Danone and Abbott Laboratories.
The Vevey-based firm, which was founded by pioneering the development of baby formula, expects the acquisition will generate sales of $2.4bn this year and boost margins, thanks to its large exposure to fast-growing emerging markets.
"Its strong brands and product portfolio, its talented people dedicated to the success of its business, together with its geographic presence - 85 per cent of its sales are in emerging markets - will complement our existing infant nutrition business perfectly," Nestle Chief Executive Paul Bulcke said on Monday.
Pfizer put its infant nutrition and animal health businesses up for sale last July as it looks to focus on its core pharmaceuticals business.
City A.M. Reporter