Nestle near buying Pfizer's baby formula

Nestle , the world's biggest food group, is closing in on a deal to buy Pfizer's infant nutrition business for up to USD 10 billion to boost its business in China and extend its lead in the world of formula milk for babies, sources familiar with the matter said on Wednesday.

The Swiss group had already been seen as favourite for the business, and is now set to seal a deal later this month after outbidding a joint team of Danoneand Mead Johnson in a largely two-horse race.

"Nestle is in the lead position and is closing in on a deal which we expect soon," said one source.

Another source said the business would fetch USD 9-10 billion and expected a deal by the end of the April.

If Danone loses out, analysts say the French group will face a problem of how to expand, with its Chief Executive Franck Riboud saying it did not have the firepower to mount big deals which would seem to rule out an eventual move for Mead Johnson.

The Pfizer unit is a high-growth USD 2.1 billion turnover business with over 70% of sales in emerging markets and a key position in China, and has attracted the attention of the three largest players in the infant milk formula sector.

Pfizer put the business up for sale last July following its USD 68 billion purchase of Wyeth in 2009, while it is also looking to offload its animal health business and says this is more likely to be spun off than sold outright.

A spokesman for Vevey-based Nestle, which holds its annual general meeting in Lausanne on Thursday and releases first-quarter sales figures on Friday, said "we never comment on market rumours".

Analysts said if the deal is concluded it would be positive for Nestle and also may help Danone's shares as there has been concern that the French group might pay a huge price for the business and massively leverage up its balance sheet.

"Overall, this deal makes huge strategic sense for Nestle. It is in the right categories and the right markets and with a reasonable price we would expect a fairly positive response from investors," said analyst Andrew Wood at Bernstein.

Nestle shares were off 0.3% at 56.60 Swiss francs and Danone up 1% at 53.61 euros by 1030 GMT.