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Nestlé Acquisition of Gerber
By:-
Anirban Mazumdar - 11074
Ankit Chouskey -11075
Table of Contents
Nestlé Background
Gerber Background
Novartis Background
Past Acquisitions
The Deal
Effects of Acquisition
Future Expectations
Nestlé Background
Founder of Nestlé Henri Nestlé
A Swiss Company Three different nutrition divisions
Healthcare Nutrition, infant nutrition, and performance nutrition
Largest manufacturer of infant nutritional products
Gerber Background
Founders of Gerber Daniel Gerber and Dorothy Gerber
Largest seller of baby food in U.S. In 2000, Gerber began selling a line of
powders, oils and other toiletries for children
In 2002 it launched microwaveable meals for older toddlers
Has a life insurance unit
Novartis Background
A Swiss Company Pharmaceutical manufacturer Looking to sell Gerber to streamline
portfolio and focus on health care
Past Acquisitions
Bought Jenny Craig for $600 million Bought medical nutrition division from
Novartis for $2.5 billion
The Deal
In 1994, tried to acquire Gerber, but lost to Sandoz
Nestlé acquired Gerber for $5.5 billion (€4bn) on April 12, 2007
Nestlé now holds the largest share of the global baby food market
The Effects of the Acquisition
Before the Gerber acquisition, Nestlé had no presence in the U.S.
Gerber has 81% of the canned baby food market
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Gerber Beech-Nut
Corp.
DelMonteFoods
Other
Market Share (%)
Top Baby Food Makers
Source: Grocery Headquarters, p.30
Future Expectations
Trying to expand the brand name of Gerber to European countries Proven to have been successful in this area
Cost synergies of $95 million by 2011 Gerber expected to generate sales of $1.95 billion
Expected to grow at 8.5% annually
Future Results
Shares in Nestle shares were up 0.1%, at 490 Swiss francs ($402.10), in Zurich trading, while Novartis was flat at 67.10 Swiss francs ($55.06). Pharmaceutical manufacturer said its divestment of the unit was part of a strategy to streamline its portfolio so that it could focus entirely on healthcare.
Sales at the group rose to CHF98.5bn (€60.5bn) while organic growth was 6.2 per cent and net profit was up 13.8 per cent to CHF9.2bn (€5.6bn).
What the CEO of Nestlé had to say
"The acquisition of Gerber is the perfect complementary fit. It not only gives Nestlé the leadership position in baby food, but it also constitutes a decisive step to establish Nestlé Nutrition as the undisputed global leader in the nutrition field. This is a major step in the transformational journey of Nestlé toward a Nutrition, Health and Wellness Company. It is my great pleasure to welcome the employees of Gerber to the Nestlé Group."
- Peter Brabeck-Letmathe, CEO of Nestlé
Calculate the Value of Nestlé
The expected cash flow at the end of the year is $11.5 billion (FCF1). Assuming a growth rate of 8.5% for the next two years, the cash flows are $12.5 billion (FCF2) and $13.5 billion (FCF3), respectively. Then assume that the future cash flows will grow at a constant growth rate of 5% for the fourth year and beyond. Use a 10% cost of capital. Find the present value of the future cash flows.
3 quarters:-$11.5 billion / (1+.1)^1 = $10.45 billion$12.5 billion / (1+.1)^2 = $10.33 billion$13.5 billion / (1+.1)^3 = $10.14 billion[[$13.5 billion x (1.05)] / (.1-.05)] x (1/1.1)^3 = $213.00 billion
Total:- $10.45 + $10.33 + $10.14 + $213.00 =$243.92 billion