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 Beech- Del Other
Nut Monte
Corp. Foods
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-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