Nestle Buys Gerber for $5.5 Billion

By Hugo Miller and Eva von Schaper
Bloomberg News
Friday, April 13, 2007

Nestle agreed yesterday to buy the Gerber brand from the Swiss drugmaker Novartis for $5.5 billion in cash, giving the world's biggest food company 82 percent of the U.S. baby-food market.

Gerber, with revenue of $1.6 billion in 2006, sells pureed carrots and strained peas in 80 countries. Nestle will add the unit to its nutrition division, which includes Jenny Craig diet foods and Neslac infant formula, chief executive Peter Brabeck said in Vevey, Switzerland.

The nutrition unit will account for 10 percent of Nestle's revenue with the addition of Gerber. The unit's sales are growing faster than supermarket brands such as Nescafe instant coffee and KitKat chocolate bars. Novartis has been selling its food units for five years to focus on health care.

"Strategically, this is a win-win situation, as baby food isn't part of Novartis core business and is a key part of Nestle's," said Patrick Hasenboehler, an analyst at Bank Sarasin in Zurich.

Sales of nutritional food are increasing by as much as 8 percent a year, compared with between 1 and 2 percent for the broader food market, according to Kepler Equities.

"We got excited by the potential for innovation" at Gerber, Richard T. Laube, the head of Nestle's nutrition business, said in a conference call. "There's a lot from this business that we can reapply to our own." He pointed to such Gerber brands as Graduates for toddlers, which has sales of $250 million and a 91 percent market share.

The purchase price equates to 15.7 times Gerber's estimated 2007 earnings before interest, tax, depreciation and amortization, compared with 13 times EBITDA for its 2006 acquisition of Australia's Uncle Tobys food brand.

"Novartis got a good price," said Luis Correia, who helps manage about $550 million in health stocks, including Novartis, at Clariden Bank in Zurich.

Nestle spent almost $4 billion last year buying nutrition brands, including a Novartis unit that makes enriched meals for the sick and elderly. Novartis, which is based in Basel, is the world's fourth-largest drugmaker.

The brand, featuring the cherubic Gerber baby on its labels, is sold in 80 countries and had a $307 million operating profit in 2006. Its headquarters are in Parsippany, N.J.. Daniel Gerber founded the business in 1928, mass-producing strained fruit for infants at a cannery.


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