Thursday April 12, 10:01 AM
Nestle buys US baby food business off Novartis
GENEVA (AFP) - Swiss food giant Nestle (4707.KL - news) has agreed to buy the Gerber baby food business off fellow Swiss pharmaceuticals group Novartis (Virt-X: NOVN.VX - news) for 5.5 billion dollars (4.1 billion euros) in cash, Novartis announced Thursday.
Novartis said the deal completes its divestiture program, following its strategy to focus on healthcare with pharmaceuticals at the core, adding that the transaction was expected to be completed by the second half of 2007.
"Over the past decade we have continuously invested in RD, strengthening our innovation power and building our healthcare businesses, particularly pharmaceuticals, while divesting over 50 percent of our non-core, non-healthcare businesses," Novartis chairman and CEO Daniel Vasella said.
He emphasised that the transaction was also "the right move for Gerber, as it will become a priority business in a leading global nutrition company."
Shares in both companies outperformed the wider market on Thursday morning as investors welcomed the deal.
Nestle shares were up 1.0 Swiss franc at 490.75 on the Zurich stock exchange while Novartis shares rose 0.05 Swiss francs to 67.15.
The overall SMI index was down 18.76 points at 9,117.33.
Market players welcomed the deal as a positive move for both companies, even though Nestle is seen paying a higher price than expected.
"The 5.5 billion dollars offers an extra 10 percent to what was last speculated by the media," one trader said.
"While the deal was widely expected, it remains a sound move for both Novartis and Nestle," added a trader at Zuercher Kantonalbank.
Banque Cantonale Vaudoise (BCVN.SW - news) analysts said the deal could lead to cost-savings for Nestle of 95 million dollars by 2011.
Nestle had reportedly been keen to acquire Gerber for more than 10 years. It made an offer for the group back in 1994, but was thwarted by Sandoz, which went on to merge with Ciba-Geigy, which gave birth to Novartis.
Gerber, based in Parsipanny, New Jersey in the United States, has a portfolio of around 300 food products for babies, toddlers and infants as well as a line in baby-care and life insurance.
In 2006 Gerber had unaudited net sales of 1.6 billion dollars with an operating income of 307 million, the statement said.
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