Geneva: Nestle SA, the world’s largest food company, agreed to buy baby food brand Gerber from Swiss drug maker Novartis AG for $5.5 billion (Rs23,650 crore) in cash to gain almost four-fifths of the US market for infant purees. Nestle will add Gerber’s annual sales of $1.6 billion to its nutrition unit, which makes Jenny Craig diet food, the Vevey, Switzerland-based company said in an emailed statement on Thursday.
The maker of Neslac and Good Start infant formulae (in India, the company sells the Cerelac and Nestum brands of infant food) spent almost $4 billion last year buying nutrition brands with sales growth surpassing the rest of the food industry, including a Novartis unit that makes enriched meals for the sick.
“This is a reasonable price,” said Karl-Heinz Scheunemann, an analyst at Bankhaus Metzler in Frankfurt.
Gerber, known for the baby appearing on its jar labels, is based in Parsippany, New Jersey and “recognized by virtually all mothers in the US”, according to Nestle. It sells 190 products in 80 countries, and had an operating profit of $307 million last year. It does not operate in India, although its products are imported and sold in the country.
“This transaction is the right move for Gerber, as it will become a priority business in a leading global nutrition company,” Novartis CEO Daniel Vasella said in a statement sent by the Basel, Switzerland-based drug maker. The transaction will close in the second half and is subject to regulatory nod, the companies said.
Novartis is left with contact-lens maker Ciba Vision as the only business not making drugs or vaccines now. Ciba is not a “core business,” Novartis spokesman John Gilardi said. Before selling its hospital-food unit for $2.5 billion to Nestle in December, Novartis sold a division that makes Isostar energy drinks to ABN Amro Holding NV for $271 million.
Sales of nutritional food are increasing by as much as 8% a year, compared with between 1% and 2% for the broader food market, according to Kepler Equities. Buying Gerber will give Nestle 79% of the US baby-food market, according to Morgan Stanley. “The acquisition of Gerber is the perfect complementary fit,” Nestle CEO Peter Brabeck said. “This is a major step in the transformational journey of Nestle towards a nutrition, health and wellness company.”