Mexico: CFC’s full decision on Nestle/Pfizer block

The CFC made available to CPI a press release explaining its recent decision to block Nestle’s attempted acquisition of Pfizer infant formula company. See the full text below.

THE CFC DENIES AUTHORIZATION FOR NESTLÉ’S ACQUISITION OF PFIZER’S INFANT NUTRITION BUSINESS IN MEXICO (in the market of infant milk formula)

CFC 17-2012

• The transaction would give Nestlé 71% and 88% of the domestic market for infant formula for babies between zero and 36 months old.
• If the transaction had taken place, Nestlé could have raised prices of its different brands up to 11.5%, also giving competitors room to raise their prices to a lesser extent.
• Nestlé and Pfizer proposed remedies that resulted insufficient to prevent the harmful effects for competition derived from the notified acquisition.
• These two companies have 30 working days to appeal before the CFC and, if they choose so, to present a new remedies proposal.

Mexico City, November 20, 2012. – The Plenum of the Mexican Federal Competition Commission (CFC) decided not to authorize the acquisition of Pfizer Inc. nutrition business by Nestlé SA, considering that the notified transaction poses real and substantial risks to competition.

The acquisition, subject to approval by the CFC, is part of an international transaction through which Nestlé SA plans to acquire the global business division of Pfizer Nutrition Inc. In Mexico, Nestlé and Pfizer concur in the markets of infant milk formulas for babies from zero to 36 months.

The infant milk formulas are divided, according to their use, in stage-one and –two formula, stage-three formulas and special formulations. Given the very small amount of imports from outside, foreign competition is not an issue, all these markets are national.

For formulas of stage-one and -two, the notified operation would give Nestlé 70.6% of the domestic market (63.7% in value); for stage-three, it would result in a participation of 88.2% (79.8% in value); and in special formulas, it would accumulate 37.0% of the market (36.2% in value).

All markets present high entry barriers, including economies of scale, a complex system of promotion through contact with pediatricians and brand loyalty created immediately after birth.

In these circumstances, the CFC assessment showed that, if carried out, the notified transaction would open the door for Nestlé to raise prices between 2.9 and 11.5% of its infant formulas, depending on the brand, as well as a similar response, though to lesser extent, by other competitors. The companies involved in the transaction presented a series of remedy proposals that are insufficient to prevent damage to competition that will result from the merger.

For these reasons, in accordance with Articles 16, 17 and 18 Section I of the Federal Law of Economic Competition (FLEC), the CFC’s Plenum decided not to authorize the merger transaction.

The Plenum’s decision was voted by a majority of 4-1 votes with Commissioners Cristina Massa Sanchez, Miguel Flores Bernés, Rodrigo Morales and Eduardo Perez Motta Elcoro. Commissioner Luis Alberto Ibarra Pardo voted against considering that the transaction may have been subjected to remedies set by the Commission.

The two companies involved have 30 working days to file a motion for reconsideration (appeal) before the Commission. Under Article 17 of the FLEC bylaws, in this appeal the parties may request the Commission to consider a new remedy proposal

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