Nestlé Acquisition
of Gerber
Jeff Hsu
Joe Orvidas
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 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

Top Baby Food Makers
90%
80%
70%
60%
50%
40%
Market Share (%)
30%
20%
10%
0%
Gerber BeechNut
Corp.
Del
Monte
Foods
Other
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
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.
A) $180.58 billion
B) $201.90 billion
C) $243.92 billion
D) $287.85 billion
E) Not sure
Answer
$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

$10.45 + $10.33 + $10.14 + $213.00
=$243.92 billion
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
Thanks for your attention.
Questions?
Sources




http://www.ir.nestle.com
http://www.forbes.com/markets/2007/04/12/nestle-gerber-updatemarkets-equity-cx_po_0412markets07.html
http://www.freep.com/apps/pbcs.dll/article?AID=/20070413/BUSINE
SS06/704130353
Grocery Headquarters, August, 2004, p.30