Nestlé, Pfizer merger approved

The conditions would see the divestiture of the infant milk formula business of Pfizer Nutrition in SA to a proposed purchaser. The buyer will be compelled to rebrand the Pfizer Nutrition products referred to as the S-26 and SMA range of products.

The merger between the largest and third-largest producers in the South Africa's infant milk formula market was conditionally approved in February this year.

The tribunal said the "transitional rebranding" remedy has averted a likely price increase or quality deterioration of the merging parties' infant nutrition products because the merger would have led to a "three-to-two" merger.

"The objective of the transitional rebranding is to maintain‚ in the short term‚ the competitive landscape that existed before the merger while creating an independent and viable competitor to Nestlé in the medium- and long-term."

The tribunal said the rebranding would create an opportunity for the emergence of a "viable‚ stand-alone competitor‚ independent of Nestlé and without any association or link to the Pfizer brands".

The large merger was assessed by the Competition Commission, which recommended the conditional approval. At the hearing before the tribunal Nestlé general counsel Patrick Beringer said Pfizer Nutrition's turnover in SA was about 1% of the total turnover of the assets acquired globally. As it was not a significant part of Nestlé's rationale for completing the transaction‚ it decided to divest the business in SA‚ including the licensing of the Pfizer milk brands in SA by way of a transitional rebranding.

He said a divestiture without a rebranding would hold serious reputational risks for the merged entity. It would have no control over the quality and improvement of a brand it was managing in other jurisdictions but which was owned by someone else in SA.

The rebranding has to be done within 10 years of the approval of the transaction. The global transaction - worth R105.3bn - has been investigated by regulators in 15 countries.

The tribunal said the success of the rebranding would depend on the identity and characteristics of the purchaser of the divested business and that the commission would have to approve the purchaser, which so far has not yet been identified.