Tuesday, April 8, 2008

Supply-Side Memo: Giant Nestle is on the Prowl for Natural, Nutritional, Health and Wellness Food Companies to Acquire

The world's largest food company, Nestle, will soon have $11 billion dollars of cash on hand from its planned sale of 25% of its 77% stake in the U.S. eye care company Alcon, to drug company Novartis. Nestle announced the sale today.

Further, not too long after that, Novartis will acquire the remaining 52% of Nestle's original 77% stake (23% of Alcon isn't owned by Nestle in other words) for a fixed price of $28 billion, making the total purchase price of Nestle's (77%) stake in the U.S. eye care company by Novaris a whopping $39 billion.

Even more interesting to those in the natural products industry is the fact Nestle plans on using a big chuck of those new billions to acquire companies in the natural, healthy, nutritional and wellness food and product's sectors, we've learned.

This acquisition strategy fits well with the food giant's strategic positioning and strategy to become the dominant global corporate force in natural and nutritional foods. In fact, Nestle could use as much as half of the $39 billion, nearly $20 billion, to acquire natural, nutritional and healthy product food companies, we've learned.

In fact, one of our sources who is close to Nestle and thus needs to remain anonymous, told us on Monday Nestle executives have already identified a number of natural and nutritional foods companies which they plan on making acquisition offers to.

Switzerland-based Nestle has positioned itself into the world's foremost nutritional, health and wellness foods company, with top brands in these categories across the board. But it is far from finished. The world's "most admired" food company, as named by Fortune magazine, wants to dominate the nutritional and health and wellness categories globally because it's in these sectors where the company's leaders believe the most future growth will com.

Nestle makes and markets far more than just nutritional, health and wellness category food products of course. [Take a look at the company's brand portfolio here.] However, nutrition, health and wellness are the giant global food and beverage companies fastest-growing categories and where its going in terms of its overall global positioning, as we mentioned above.

Overall, Nestle controls food, grocery and beverage brands, and markets products in the following categories: bottled water (number one globally); baby foods; dairy products (including Hispanic and Asian specialty products); breakfast cereals (including partnering with General Mills outside of North America); and beverages (Nescafe coffee, Libby's fruit juices, Nestea and more, as well as a complete line of Hispanic coffee products).

Other categories include: ice cream (including marketing the frozen treat in China and the Middle East, among other places in the world), chocolate and confectionery (everything from basic chocolate bars to gourmet treats), prepared foods (everything from packaged soups and pasta sauces, to shelf-stable dinner entrees and frozen foods, including numerous specialty, ethnic, gourmet and natural/organic brands), and pet foods and pet care (the Carnation brand and Ralston-Purina brand, along with others.

Lastly, is the nutrition, health and wellness category, which Nestle is growing the fastest of all the above sectors in its consumer packaged goods and beverage group, and plans to use a major portion of the $39 billion from the sale of its 77% stake in Alcon eye care to Novartis to grow even faster by acquiring numerous companies in these categories, which are all related.

Nestle also has a huge global foodservice operation called Nestle Professional, as well as owning 30% of the cosmetics firm L' Oreal.

Look to Nestle for multiple acquisitions of natural, nutritional and health and wellness-oriented food companies in the U.S. as well as globally before 2008 is over.

Despite the global economic slowdown, Nestle believes there's no better time than the present to make major acquisitions to continue growing its nutritional sector. That's the primary reason, along with wanting to pay down some debt, the comapny is selling its 77% stake in eye care company Alcon.

Nestle's acquisition search is going to shake up the scene

There hasn't been much acquisition activity in the natural, health and nutritional foods manufacturing and marketing sector in the last year. With billions in its acquisition bank, Nestle is going to stir things up quite a bit and shake up the currently static M&A scene.

For example, there a number of successful, large and middle-sized natural and nutritional foods companies in the U.S. that are looking to be acquired or merged as they're in need of additional capital in order to get to the next level.

However, since there hasn't been a "big foods guy" like Kraft, General Mills, Heinz or Nestle (all which have made major acquisitions in the sector in the past) out there for a couple years, there's a pent-up demand so to speak in the natural, health and nutrition industry for suitors, in our analysis. Nestle could be that suitor many of these companies are looking for. Stay tuned.


Anonymous said...

Have you seen all the press on Nestle's attempts to buy up water rights for their bottled water divisions?

Anonymous Seattle

Natural~Specialty Foods Memo said...

Thanks for the comment.

Yes, have seen some of those reports. Not expert in the issue however.

The whole water issue is very interesting.

Did you know there's a big move by some entrepreneurs and established company's to even privatize water?

They are buying up water rights and storing the water in giant acquifers--for example in the Western USA.

You can find some stuff about it by doing a Google search...try 'Water Privatization.'

Water looks to be an even bigger issue than oil in the coming years. What do you think?