Sources: Nestle leads in Pfizer unit bid, but don't count out Danone-Mead

It's Nestle ($NSRGY) versus the Danone-Mead Johnson team for Pfizer's ($PFE) $10 billion infant nutrition unit, and the Swiss company has an edge, according to sources cited by Reuters. But don't count out the Danone-Mead Johnson group just yet.

Early last year, Pfizer decided to sell or spin off the unit and focus on the drug business. The first round of bids came in late last year. A second round of bids is due Monday.

Nestle, a food group titan, has been pegged by bankers and other experts as the ultimate winner, but the Danone team does look strong. Although some figure Pfizer might favor the single bidder over the combined group, the latter does have an edge in that it has already addressed antitrust concerns that are bound to come up.

"Danone has solved the antitrust dilemma by getting together with Mead, and Nestle still has to deal with all that. The stakes are high for Danone; if Nestle wins the asset then Danone faces more robust competition from a much bigger competitor," Reuters quotes an insider as saying.

To soothe antitrust concerns, Nestle may have to get rid of assets in Latin America, the Middle East and Africa, according to Morgan Stanley's Michael Steib. Analysts have named Heinz as a potential buyer of any assets that need to be shed. Although Heinz has said it's not interested in picking up the entire Pfizer business, it is eyeing the Latin American unit of the business, reported earlier this week. Even that sort of transaction would boost Heinz, which is the 6th-largest infant nutrition business in the world.

The Pfizer unit ranks 5th in the infant milk formula market after Nestle, Mead Johnson, Danone and Abbott Laboratories ($ABT), with more than 25% of its sales in China, a huge market. Nestle doesn't have much of a presence there, while Danone also could use the Pfizer products to beef up, Reuters notes.

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