Nestle has acquired the Gerber baby food brand from Novartis for US$5.5 billion.
This follows financial market reports last month that "with a free cash flow of CHF7 billion last year, Nestle has enough cash for a large takeover, as it aims to expand its wellness and nutrition operations, along with its traditional business.”
The acquisition of Gerber was one of the reasons Nestle announced that there would be no share buybacks in 2007. Financial markets were expecting the announcement of a CHF 4 billion share buyback following last year’s buyback and cancellation of CHF 3 billion in shares.
SWITZERLAND: Nestlé snaps up Gerber baby food brand
12 April 2007 | Source: just-food.com
Nestlé has secured the acquisition of US baby food brand Gerber in a deal worth US$5.5bn.
The Swiss food giant confirmed the purchase from drug maker Novartis today (12 April) after months of speculation.
Nestlé is shifting its strategic focus toward health and nutrition and last year bought Novartis's medical nutrition business for $2.5bn.
The acquisition of Gerber, which commands some 82% of the US baby food market, gives Nestlé global leadership of the category. Gerber, Nestlé said, also holds "strong positions" in markets ranging from Mexico to Poland.
Nestlé chairman and CEO Peter Brabeck-Letmathe commented: "This is a major step in the transformational journey of Nestlé toward a nutrition, health and wellness company. The acquisition of Gerber is the perfect complementary fit."
Gerber will propel sales from Nestlé Nutrition, the company's stand-alone business, to CHF10bn (US$8.2bn). Last year, Nestlé achieved group turnover of CHF98.5bn.
“With a free cash flow of CHF7 billion last year, Nestle has enough cash for a large takeover, as it aims to expand its wellness and nutrition operations, along with its traditional business. According to recent media reports, Nestle and Novartis are discussing Novartis's baby food unit, Gerber, which doesn't fit into the pharmaceutical company's portfolio. Recent Nestle acquisitions include U.S. healthcare and weight control company Jenny Craig.”
DJ 3rd UPDATE: Nestle 06 Net Pft +14%; Ups Div, No New Buyback
By Martin Gelnar
VEVEY, Switzerland (Dow Jones)--Nestle SA (NSRGY) Thursday reported a 14% rise in full-year net profit, boosted by past streamlining efforts and price increases, and said it plans to increase its dividend.
But the world's largest food and beverages pRoducer said it doesn't plan any further share buybacks in the short term, scotching hopes Nestle would continue its recent policy of returning money to shareholders.
Nestle, which sells brands such as Nescafe, Dreyer's and Ralston Purina, said net profit rose last year to CHF9.2 billion, or $7.4 billion, from 2005's CHF8.1 billion. The result beat market expectations of around CHF9.1 billion. Sales rose to CHF98.5 billion from CHF91.1 billion, slightly above market expectations of CHF98.3 billion, while earnings before interest and taxes were at CHF13.3 billion versus CHF11.9 billion.
Year-ago figures were restated for accounting changes.
Organic growth, a yardstick combining volume growth and price increases, stood at 6.2% versus an expected 6%, at the high end of the company's long-standing target of 5% to 6%.
The company also proposed a CHF10.4 per-share dividend, up 15.6% from last year.
For 2007, Nestle reiterated its 5% to 6% organic growth guidance and said it aims to raise operating margin further. Higher prices for milk, coffee and corn should be offset by cost cuts and hikes in selling prices. Chief Financial Officer Paul Polman said the company expects to improve business in some problem markets such as U.K. and U.S. confectionary operations. Another former problem child, French mineral water brand Perrier, is clearly getting more profitable, Nestle water division head Carlo Donati said. Nestle last year outsourced Perrier's bottling operations to a third party.
Analysts said the results were strong, beating consensus forecasts across the board. Bernstein Research analyst Andrew Wood reaffirmed a buy rating and CHF545 price target, pointing out the EBIT margin improvement to 13.5% from 13.0% in 2005. "The dividend increase was a positive surprise while the absence of another share buyback was a disappointment, analyst Andrew Wood said.
Kepler Equities also reiterated a buy rating. Bank Vontobel said it would increase its forecasts reaffirming a sector perform rating.
Nestle shares were 2.8% higher at 1050 GMT, or up CHF12.75 at CHF476.75 in a higher Swiss market. The shares have gained over 33% since hitting a trough at CHF355 in May last year, driven by increased confidence in the global business climate as well as a CHF3 billion share buyback Nestle began late in 2005.
After that buyback, analysts had been looking for a similar move worth up to CHF4 billion this year. However, Nestle's recent plan to acquire Novartis AG's (NVS) medical nutrition business for $2.53 billion was a counterweight on these expectations. The acquisition will likely close in the second half of 2007 following regulatory approval.
Chief Executive Officer Peter Brabeck said the company will decide on any share buyback once it has surplus funds to return to shareholders.
This year's planned capital expenditure, the increase in dividend payments and the purchase from Novartis will significantly reduce Nestle's cash pile, he said.
With a free cash flow of CHF7 billion last year, Nestle has enough cash for a large takeover, as it aims to expand its wellness and nutrition operations, along with its traditional business. According to recent media reports, Nestle and Novartis are discussing Novartis's baby food unit, Gerber, which doesn't fit into the pharmaceutical company's portfolio. Recent Nestle acquisitions include U.S. healthcare and weight control company Jenny Craig.
Nestle didn't comment on this speculation on Thursday.
Brabeck said Nestle plans to announce a new chief executive in September. Brabeck, who is also Chairman, added he plans to relinquish his CEO function after the 2008 general meeting. Many analysts expect current CFO Polman to become the next top manager while Brabeck is set to continue to chair the board.
Nestle rivals' recent financial reports have been mixed.
Consumer goods company Unilever PLC (UN/UL), a Nestle rival, recently reported a 25% rise in net profit in 2006 to EUR4.75 billion from 2005's EUR3.77 billion, boosted by a EUR1.2 billion gain on a divestment. Unilever's fullyear revenue was EUR39.6 billion compared with EUR38.4 billion in 2005.
French dairy products and bottled water maker Groupe Danone (DA) recently said it posted organic sales growth of 9.7% for 2006, above consensus estimates of 8.8% and its own guidance of 8%.
Babyfood and nutritional supplement company Royal Numico NV (37561.AE) Wednesday reported a 41% fall in fourth-quarter net profit to EUR27 million, but said it sees double-digit growth and a stable margin for the full year.
Copyright (c) 2007 Dow Jones and Company, Inc.
