Aspen acquires more baby formula

This is interesting. Just this morning there is an announcement from Aspen who are paying 215 million US Dollars for infant nutritional products both in Southern Africa and Down Under in Australia. It looks a little complicated after having read it a few times, but the thing to remember is that they used to actually manufacture this product here under licence from Wyeth. Anyone with a small child will be familiar with the S26 and SMA formula products. The amount of "stuff" that you have to carry around with your baby far exceeds the physical size of the child. Formula, bottles, bibs, and the list really goes on and on.


Back to Wyeth, which was then bought by Pfizer in 2009. Pfizer then sold the infant nutrition business this time last year to Nestle for 11.85 billion Dollars. See this WSJ reminder: Nestle Wins Pfizer Auction. They (Nestle) paid a whopping 19.8 times EBIT. And it was only this year, not so long ago in fact, in February, that the competitions authorities gave the thumbs up here locally for that transaction. Perhaps that is part of the puzzle as to why Nestle would look to Aspen to produce and distribute the product for them, they know the regulatory environment better.


Here is the official announcement from the Aspen website: Aspen to invest more than R1,9 billion in infant nutritional deal with Pfizer. 215 Dollars is a big check to write. That is roughly 75 million Rands higher than the 1.9 billion ZAR in the headline. At current levels of the Rand to the US Dollar, the rate no doubt has been set.


The annual turnover of the Australian part of the business is roughly 785 million Rands, at 9.48 Aussie to the ZAR. And add in the local turnover of 180 million, you can roughly get to 965 million ZAR. So, they, Aspen are paying two times annual revenue for the business of selling baby formula. I checked the annual report, several of them to see whether or not I could find the margins for their baby formula business, but sadly only the segmented business report was able to give me was for the whole business, the South African consumer division has been flat for a while now. It is so hard to find the margins of this business, because the Sub Saharan Africa business is probably a better fit, at 15 percent EBITA. The South African business, which included the Pharma, last year had EBITA margins of 28.7 percent. The consumer division sales however were "only" 998 million Rands. So, this acquisition is roughly the same size. And working backwards from that EBITA margins for the Rest of Africa business, I can presume that they paid a cheaper price than Nestle paid Pfizer.