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Health-conscious Nestle sells U.S. candy to Ferrero for $2.8 billion

From Reuters - January 16, 2018

LONDON/MILAN (Reuters) - Swiss food group Nestle (NESN.S) has agreed to sell its U.S. confectionery business to Italys Ferrero for $2.8 billion, it said on Tuesday, marking CEO Mark Schneiders first big sale and a small step on its path towards healthier products.

Nestle, the worlds biggest packaged-food company, has cited the units weak position in the United States, where it trails Hershey (HSY.N), Mars Inc and Lindt, as the rationale for a sale.

For family-owned Ferrero, the cash deal offers a chance for the Italian company to build scale quickly in that key market, where it has done two other deals in the past year.

The maker of Nutella spread and Ferrero Rocher pralines will become the third-largest chocolate company in the U.S. and globally, according to Euromonitor International.

For Nestle, which first sold milk chocolate in the 1880s, a consumer shift away from junk and sugary foods has led the Swiss company to focus on nutrition, health and wellness, although it says it is committed to its non-U.S. confectionery business.

However, bankers and analysts have speculated that it could dispose of other weak brands, or even step away from candy altogether by forming a joint venture as it recently did in ice cream. Hershey, which owns Nestles KitKat brand in the United States, would be the obvious partner, one banker said.

Tuesdays deal only accounts for about 1 percent of Nestles sales, but is part of a larger shake-up by chief executive Schneider, a healthcare industry veteran one year into the job.

Schneider has been tasked with accelerating Nestles growth strategy in an increasingly tough environment for multinational food companies due to slowing growth and greater competition from niche, upstart brands.

Nestles mass-market chocolate bars, such as BabyRuth, Butterfinger and Crunch, have underperformed rivals for years as consumers have turned towards healthier snacks such as fruit bars and premium chocolate brands such as Lindt (LISN.S).

Nestle said last week it was selling Australian chocolate bar Violet Crumble. The company is expanding into consumer health, bidding for the vitamin and supplements business being sold by Germanys Merck (MRCG.DE) after agreeing last month to buy vitamin maker Atrium Innovations.

CHOCOLATE WOES

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