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Nestl é Acquisition of Gerber

Nestl é 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. Nestl é Background. Founder of Nestlé Henri Nestlé A Swiss Company

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Nestl é Acquisition of Gerber

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  1. Nestlé Acquisition of Gerber Jeff Hsu Joe Orvidas

  2. Table of Contents • Nestlé Background • Gerber Background • Novartis Background • Past Acquisitions • The Deal • Effects of Acquisition • Future Expectations

  3. 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

  4. 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

  5. Novartis Background • A Swiss Company • Pharmaceutical manufacturer • Looking to sell Gerber to streamline portfolio and focus on health care

  6. Past Acquisitions • Bought Jenny Craig for $600 million • Bought medical nutrition division from Novartis for $2.5 billion

  7. 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

  8. 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

  9. Top Baby Food Makers Source: Grocery Headquarters, p.30

  10. 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

  11. 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. Calculate the Value of Nestlé • $180.58 billion • $201.90 billion • C) $243.92 billion • D) $287.85 billion • E) Not sure

  12. 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

  13. 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

  14. Thanks for your attention. Questions?

  15. Sources • http://www.ir.nestle.com • http://www.forbes.com/markets/2007/04/12/nestle-gerber-update-markets-equity-cx_po_0412markets07.html • http://www.freep.com/apps/pbcs.dll/article?AID=/20070413/BUSINESS06/704130353 • Grocery Headquarters, August, 2004, p.30

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