Nestlé to buy Gerber
Global food giant Nestlé announced it would buy the Gerber Products Company from fellow Swiss company Novartis. Gerber is the US's #1 baby food company. The announced cost is $5.5 billion.
For Novartis, it is the continuation of a long process of divesting non-pharmaceutical business. It sold its medical-nutrition division to Nestlé in 2006 for $2.4 billion.
For Nestlé, it gives them a dominant position in the US baby food market, where Gerber has an 80% share. Nestle has little presence in that market in the US, but is strong worldwide in the baby formula market. (That has been a source of wide condemnation for its tactics in selling baby formula to poor mothers in Third-World countries.) Gerber has a more limited global presence, but that is something Nestlé can help it grow.
Interestingly, Nestlé lost a bid in 1994 to buy out Gerber to Sandoz, subsequently merged with Ciba-Geigy to make to form Novartis. Sandoz paid $3.7 billion for the company a decade ago.
As a Wall Street Journal article ("Nestlé Bolsters Baby-Food Line," 4/12/07), "The market for baby food has been relatively slow-growing, but the profit margins are among the highest in the prepared-food industry, at 24% in the U.S., compared with 16% for all packaged food," Gerber sales are growing at 7% a year, faster than most of Nestlé's older food and beverage lines. Nestlé is also eager to extend its presence in the high-margin "nutritional" and 'healthy" areas, where it has already spent dome $4 billion in 2006, including buying diet food provider Jenny Craig and the Novartis Nutritionals.
It's notable that the price of Gerber, which makes most of it money selling little jars of pureed food is worth more than Chrysler, at least in terms of what anyone is willing to pay.
