LONDON / MILAN (Reuters) – Swiss food group Nestle ( NESN.S ) agreed to sell its US confectionery business to Italian Ferrero for $ 2.8 billion, said Tuesday, marking the first president Mark Schneider great sale and a small step on his way to healthier products.
Nestlé, the world's largest packaged food company, has cited the weak position of the unit in the United States, where it meets Hershey ( HSY.N ), Mars Inc and Lindt, as the reason for being a sale.
For the Ferrero family business, the cash agreement offers an opportunity for the Italian company to quickly create a scale in that key market, where it has made two other transactions last year.
The manufacturer of Nutella spread and Ferrero Rocher pralines will become the third largest chocolate company in the United States and worldwide, according to Euromonitor International.
For Nestlé, which sold chocolate milk for the first time in the 1880s, a consumer who turns away from junk and sugary foods has led the Swiss company to focus on "nutrition, health and well-being", although it says that is committed to American confectionery business.
However, bankers and analysts have speculated that it could get rid of other weak brands, or even get away from the candy completely by forming a joint venture like it did recently in ice cream. Hershey, owner of Nestlé's KitKat brand in the United States, would be the obvious partner, a banker said.
Tuesday's deal only represents about 1 percent of Nestlé's sales, but it is part of a major reorganization by CEO Schneider, a veteran of the health industry who has been working for a year.
Schneider has been responsible for accelerating Nestlé's growth strategy in an increasingly difficult environment for multinational food companies due to the slowdown in growth and increased competition from upstart niche brands.
Nestlé's mass-market chocolate bars, such as BabyRuth, Butterfinger and Crunch, have underperformed their rivals for years, as consumers turned to healthier snacks like fruit bars and premium brands of chocolate like Lindt ( LISN.S ).
Nestle said last week that it was selling the Australian chocolate bar Violet Crumble. The company is expanding to consumer health and is bidding for the vitamin and supplement business that is being sold by Germany's Merck ( MRCG.DE ) after agreeing last month to purchase the vitamin manufacturer Atrium Innovations.
"The change of assets it makes a lot of sense, "Vontobel analyst Jean-Philippe Bertschy said about the movements of American chocolate and vitamins. "You are coming out of a financially weak business and … entering a market with strong growth and higher margins."
Nestlé paid $ 2.3 billion for Atrium, which has around $ 700 million in annual sales. chocolate business, which sells for $ 2.8 billion, has about $ 900 million in sales.
Liberum analyst Robert Waldschmidt estimates that the agreement represents a multiple of approximately 20.7 times earnings before interest, taxes, depreciation and amortization, which said "it feels like a higher multiple."
Waldschmidt pointed out the recent sale of the food business of Reckitt Benckiser ( RB.L ), which is the highest margin, with 20.3 times EBITDA.
Third Point, the US-based hedge fund that has pushed Nestle to increase returns, was not immediately available for comment.
Be The United represents almost 19 percent of a global chocolate market valued at $ 102.3 billion in retail sales, according to Euromonitor. The value of the market has been driven by people choosing more and more expensive candy, but the volume has been affected by the popularity of other alternatives.
Nestlé has lost market share in recent years, as new brands such as Kind have grown rapidly.
Even Lindt, whose Lindor chocolate balls have premium prices, has felt the pain, reporting on Tuesday that organic sales for 2017 rose by only 3.7 percent, below its long-term goal of 6 to 8 percent. Sales in North America fell 1.6 percent.
Ferrero was advised by Credit Suisse and Lazard, while Davis Polk and Wardwell acted as his legal advisor.
Additional reporting by Silke Koltrowitz and John Miller in Zurich and Svea Herbst-Bayliss in Boston; Report by Martinne Geller in London; Editing by David Goodman and Alexander Smith