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

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 countriesProven to have been successful in this area

Cost synergies of $95 million by 2011 Gerber expected to generate sales of

$1.95 billionExpected to grow at 8.5% annually

Calculate the Value of NestléThe 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-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