|
Nestlé snaps up Purina
|
 |
January 16, 2001: 1:05 p.m. ET
Swiss food firm to buy Ralston Purina in $10.3B deal; execs say no job cuts
|
NEW YORK (CNNfn) - Nestlé, the world's largest food company, joined the industry's spending spree Tuesday with a $10.3 billion buyout of Ralston Purina.
The deal unites some of the best-known brands in the fast-growing pet food business, pairing Nestlé's canned wet foods -- such as Friskies and Alpo -- with Ralston's expertise in dry food such as Purina Dog Chow.
Nestlé is offering $33.50 per share for Ralston, a 36 percent premium to Ralston's closing price Friday.
"Together with Nestle, we are now in a position to build a global pet care player," said W. Patrick McGinnis, who will serve as president and CEO of Nestle Purina Pet Care, in a conference open to the media. "Nestle and Ralston really fit together," he said.
In early New York trade Tuesday, Ralston Purina (RAL: Research, Estimates) soared $6.19, or about 28 percent, to $31.44. Nestlé rose 0.9 percent to 3,501 in Zurich afternoon trade. 
Vevey, Switzerland-based Nestlé will bulk up in the U.S. pet food market, where it's currently No. 2 behind Ralston Purina, analysts said. Ralston, for its part, gains the global distribution leverage it lacks at the moment.
"This merger is not only in line with the long-term strategic approach of Nestlé, but the complementary strengths of Nestlé and Ralston Purina will accelerate both the growth and the performance of the Nestlé group," said Nestlé Chairman Rainer Gut in a statement.
Mario Corti, chief financial officer of Nestlé, told analysts in a conference call Tuesday the deal has three key features: "it makes excellent strategic sense; second, it has a compelling financial logic; third, it has low business and integration risk."
Acquisition fever has struck many food companies in recent months. Profit margins have been shrinking as their key customers -- supermarket chains -- have also been merging, giving them leverage to extract favorable prices from food companies such as Nestlé.
Philip Morris (MO: Research, Estimates), owner of Kraft, recently announced plans to buy Nabisco for roughly $15 billion, Pepsi (PEP: Research, Estimates) agreed to buy Gatorade maker Quaker Oats (OAT: Research, Estimates) last month for $13 billion and General Mills (GIS: Research, Estimates) inked a $10.5 billion purchase of Pillsbury from British owner Diageo (DGE) last July.
François Perroud, a Nestlé spokesman, admitted the Swiss group was a notable no-show in the buyout wave: "We didn't participate in some of the major moves that have happened lately. The opportunities were either not of interest or there were antitrust issues." 
For example, Perroud said overlap in the soups and bouillon business would have made tricky antitrust clearance of a possible purchase of U.S.-based Bestfoods (BFO: Research, Estimates). Ultimately Anglo-Dutch food firm Unilever agreed to buy Bestfoods last June for about $24 billion.
Corti said antitrust concerns shouldn't be a problem in the Ralston Purina deal because there are many competitors in the pet food business. Among top rivals for the combined Nestlé-Ralston will be privately owned Mars, the maker of Pedigree pet food, although the firm is best known for its confectionery.
Job cuts?
The Swiss food conglomerate said it plans to take on Ralston Purina's $1.2 billion debt.
Ratings agency Moody's warned the deal, to be paid for though a mixture of existing cash resources and debt, would "weaken Nestlé's financial parameters", and announced a review of its long-term Aaa rating on the Swiss food conglomerate's borrowings.
As of June last year -- the last date such figures were available -- Nestlé had about $6.75 billion in cash on its books. Nestle employs 19,000 people in the United States, which includes 2,200 in the pet care area.
Press reports Tuesday said the combined company, which will be headquartered in St. Louis, would be looking to make job cuts. However, company executives contradicted these reports.
 "There has been no announcement that there would be job reductions in St. Louis as a result of this transaction," McGinnis said on the conference call. "At this point, we are not entertaining job reductions as a result of this transaction."
However, Ralston is offering a voluntary, early retirement package to employees that have reached 52 years of age and older. "This had nothing to do with this transaction," McGinnis said. "It is a voluntary package."
Nestle said it expects the acquisition to boost earnings per share at the end of the first year and it sees annual cost savings of $260 million by 2003. The transaction will be dilutive to earnings per share, due to goodwill charges, for about three years, executives on Tuesday's conference call said.
Nestlé said the merger would create a $6.3 billion worldwide pet care business. Nestlé has a pet care business with revenues of some $3.7 billion while in 2000 Ralston Purina had global pet care sales of about $2.7 billion.
Ralston Purina, with its well-recognized checkerboard logo, has been selling pet food for more than a century. It was founded in 1894 by William Danforth, who peddled mule and horse feed on the banks of the Mississippi River.
Nestlé, by contrast, built its pet food empire more recently via acquisition, buying Britain's Spillers Petfoods in 1998, Alpo for $500 million in 1994 and Cargill Argentina last year.
The companies expect to complete the deal by the end of 2001. The agreement faces regulatory and Ralston Purina shareholder approval.
"For the North American continent we are well advised," executives said. "We don't see any issues that cannot be resolved." 
|
|
|
|
|
|
Nestlé
Ralston Purina
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
