FINANCIAL NEWS
Novartis to sell Nutrition Unit to Nestle
Vevey, Switzerland
European food giant Nestle SA agreed to buy a unit of Swiss drugmaker Novartis AG for $2.5 billion to become the second-biggest maker of nutritional supplements for hospitals. Nestle is already the world’s biggest food and drink company.
The deal, which was the subject of wide speculation, will propel Nestle to the No. 2 position globally in the fast-growing niche business of providing specialized food to hospital patients and boosted its shares.
Nestle added 1.16% as it said it has agreed to acquire the nutrition unit of Novartis (NYSE:NVS) AG — also up 0.57% — for 2.5 billion in USD.
The Novartis division has annual sales of $950 million and produces meals with added protein or calories for patients, Switzerland-based Nestle said.
The purchase will boost sales of higher-priced nutritional foods by about 20 percent for Nestle, which has spent about $1.3 billion this year buying diet food-maker Jenny Craig and cereal-bar producer Uncle Tobys.
“Nestle is moving further into a great market which is highly profitable and has huge growth potential,” said Holger Geissler, a fund manager at DWS in Frankfurt, who helps manage about $2 billion, including Novartis shares.
Sales of nutritional food are increasing as much as 8 percent a year, compared with 1 percent to 2 percent for the broader food market, according to Kepler Equities. Nestle has sold divisions valued at more than $1 billion that process cocoa and coffee and make food ingredients.
The Novartis unit makes Boost drinks, designed to bring proteins, minerals and vitamins to people with ailments ranging from anorexia to cancer and to aid digestion. It also makes Nutrament energy-drink and Optifast weight-loss products. It has 2,000 employees and operates in 40 countries.
First-half sales of Nestle’s nutrition foods, which includes PowerBar energy snacks, Neslac baby milk and Clinutren products, rose 5 percent.
Nestle is betting the acquisition will help it compete with market leader Abbott Laboratories, which makes hospital food in addition to heart drugs.
North Chicago-based Abbott in October said third-quarter sales of nutritional products rose 3.9 percent, to $1.1 billion.
“It’s a growing market,” said Thomas Bischof of LGT Capital Management in Liechtenstein, which has about $23 billion in assets. “It makes sense for Nestle to expand in that area. Novartis has negotiated an attractive price.”
The purchase, which is being entirely financed with cash, may position Nestle to take advantage of an aging population. By 2050, the number of people over 60 in the world will reach 21 percent, according to the United Nations, up from 10 percent in 2000. That will be the first time that people 60 and over will exceed those under 15.
Novartis said the proceeds of the sale would be used to strengthen its financial position as well as provide additional strategic flexibility. The sale does not include the Gerber baby food division.
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