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Ralston accepts Nestle bid?
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January 15, 2001: 7:02 p.m. ET
Ralston Purina's board has reportedly accepted a $10.1B takeover offer from Nestle
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NEW YORK (CNNfn) - Ralston Purina's board of directors has reportedly accepted a $10.1 billion takeover offer from Swiss food conglomerate Nestle, which values the U.S. pet-food maker at $33.50 a share.
The acquisition would give Nestle the well-known Purina Dog Chow brand, make it one of the world's largest pet-food companies and advance its goal of moving into faster-growing market sectors, The Wall Street Journal's Web site reported Monday. Although last minute details are being finalized, a deal could be announced by Tuesday, the story said.
Nestlé, the world's largest food company, declined to comment on an earlier report that the companies were negotiating a deal. 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 (RAL: Research, Estimates) also declined comment.
A $33.50 offering price would be about 36 percent higher than Ralston's (RAL: Research, Estimates) closing price Friday of $24.63 on the New York Stock Exchange.
"[Such a deal] would make strategic sense. Pet food is a core category for Nestlé and one of its fastest-growing businesses," Anne Alexandre, an analyst with HSBC in London told CNNfn.com. She also said Nestle could reap cost savings and break even in the business after the purchase within two years.
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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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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
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