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
(€4bn) 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
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
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. Future Results
Shares in Nestle shares were up 0.1%, at 490 Swiss
francs ($402.10), in Zurich trading, while Novartis was
flat at 67.10 Swiss francs ($55.06). Pharmaceutical
manufacturer said its divestment of the unit was part of a
strategy to streamline its portfolio so that it could focus
entirely on healthcare.
Sales at the group rose to CHF98.5bn (€60.5bn) while
organic growth was 6.2 per cent and net profit was up
13.8 per cent to CHF9.2bn (€5.6bn).
12. 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
13. 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.
3 quarters:-
$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
Total:-
$10.45 + $10.33 + $10.14 + $213.00
=$243.92 billion
