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Nestle 'seeks' $10B Ralston
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January 15, 2001: 12:49 p.m. ET
Report: Swiss firm in talks to buy pet food company Ralston Purina
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LONDON (CNNfn) - Swiss food conglomerate Nestlé is reportedly near a deal to buy U.S. pet food maker Ralston Purina for nearly $10 billion in cash.
The Wall Street Journal reported Monday the two companies are at an advanced stage of talk after weeks of discussions, although a deal has not been finalized and could still fall apart.
Nestlé, the world's largest food company, declined to comment. However, spokesman Francois Perroud told CNNfn.com: "we've always said pet food is a strategic area of growth for the company ... It's a growing business."
A spokesman for St. Louis-based Ralston Purina also declined comment.
Nestlé is believed to be offering close to $33 for each share of Ralston (RAL: Research, Estimates), about 34 percent more than Ralston's closing price Friday of $24.63 on the New York Stock Exchange, the Journal reported.
"It's quite high, but you have to pay the price for these kinds of deals," Anne Alexandre, an analyst with HSBC in London told CNNfn.com. She has an "add" rating on Nestlé shares and a 4,100 Swiss franc price target on Nestlé.
"[Such a deal] would make strategic sense. Pet food is a core category for Nestlé and one of its fastest-growing businesses," said Alexandre. She also said Nestle could reap cost savings and break even in the business after the purchase within two years.
In afternoon Zurich trading Monday, shares of Nestlé rose 1.9 percent to 3,460 Swiss francs.
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 WHY DO THE DEAL?
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An acquisition would combine some of the best-known brands in the pet-food business. Nestlé owns Friskies, Mighty Dog and Alpo brands, while Ralston is best known for Purina Dog Chow.
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A deal could be announced in the next few days if they reach an agreement, the Journal said, citing people familiar with the matter.
An acquisition would combine some of the best-known brands in the pet-food business. Nestlé owns Friskies, Mighty Dog and Alpo brands, while Ralston is best known for Purina Dog Chow.
It also would offer several synergies for both sides. For example, Nestle's presence in the U.S. pet food category is pretty much restricted to the canned food segment, while Ralston offers several products in the higher-growth dry food area, said Romitha Mally, a food industry analyst with Goldman Sachs.
From Ralston's perspective, the merger would also give the company the international distribution leverage it currently lacks. Mally said.
Nestlé has developed its pet-food empire – currently the second-largest in the United States after Ralston Purina – through acquisitions, buying Britain's Spillers Petfoods in 1998 and Alpo for $500 million in 1994.
Alexandre said a deal with Ralston would be likely to raise antitrust scrutiny, but "will probably get the go-ahead with small disposals."
Ralston has a 27 percent share, as measured by dollar sales, of the $4.3 billion U.S. dog-food market, with Nestlé holding about a 12 percent share. In cat food, Ralston commands 33 percent of the $2.6 billion U.S. market, and Nestlé holds about a 13 percent share, the Journal said.
Nestlé is the largest food company in the world, holding about a 6-percent market share. It's followed by U.S.-based No. 2 Philip Morris Cos. (MO: Research, Estimates), and Anglo-Dutch No. 3 Unilever (ULVR: Research, Estimates).
It is not clear whether rivals such as Procter & Gamble (PG: Research, Estimates), Colgate-Palmolive Co. (CL: Research, Estimates) and Mars Inc. -- which all have significant pet-food businesses -- will try to spoil a proposed Nestlé bid with a higher offer, the Journal reported.
But Mally said such a competing bid was unlikely.
"That's always a possibility, but Nestle has a very strong balance sheet and I've got to think if they want the company, they are going to get it," she said. 
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Nestlé
Ralston Purina
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