Novartis, Focused on Medicine, May Shed Gerber
Novartis, Focused on Medicine, May Shed Gerber
Novartis, Focused on Medicine, May Shed Gerber
Nestlé Weighs Buying Unit
It Has Long Sought as Part
Of Deal Already on the Table
Novartis AG may be prepared to sell Gerber Products Co., one of the world's largest and best-known makers of baby food, and could have a willing buyer in Nestlé SA.
Novartis, a Swiss pharmaceutical concern, already is in negotiations with Nestlé, also of
Novartis Chief Executive Daniel Vasella said in an interview yesterday that the company "probably would act opportunistically" if an offer for Gerber emerged, although he added that there was no auction for Gerber under way.
Gerber, of
Nestlé has been hungry for Gerber for more than a decade. Even though the market for infant purées and other mushy concoctions has been relatively slow growing, the profit margin for baby food is among the highest in the prepared-food industry, at 24% in the
If Novartis decides to part with Gerber, Nestlé may have to compete with others for the business.
Dr. Vasella said Gerber is growing and profitable but has been challenged by other baby-food brands undercutting its prices. And, he said, Novartis is trying to focus on medicines and vaccines. Dr. Vasella said nutrition, including Gerber, was a "more tangential" business for the company, although he also said that didn't mean the nutrition business necessarily had to be sold.
Gerber is part of Novartis's consumer-health division, which also includes over-the-counter medicines, animal-health products, medical nutrition and Ciba-brand contact lenses. The consumer-health unit had total sales of $7.3 billion last year, representing about 23% of Novartis's sales of $32.2 billion. The prescription-drug unit had sales of $20.3 billion last year.
Nestlé first tried to acquire Gerber in 1994, but lost to Sandoz AG, which later merged with Ciba-Geigy to form Novartis. Since then, Novartis has taken steps to broaden Gerber's business beyond jarred foods. In 2000, Gerber began selling a line of powders, oils and other toiletries for children, and in 2002 it launched microwavable meals for older toddlers. It also has a life-insurance unit. But the baby-food business has never been a good fit for a parent company that mainly sells medications.
Nestlé is the world's largest manufacturer of infant nutritional products, largely through its leading positions in fast-growing developing countries such as
Nestlé has no presence in baby food in the
Infant nutrition is one of the best businesses in the food industry because it has strong customer loyalty and limited competition from private labels. Once parents find a formula or food for their babies that they like and trust, they tend to stick to it and are willing to pay higher prices. As a result, it is difficult for new companies to break into the business without buying an established brand.
That could make Gerber an attractive asset for Nestlé Chief Executive Peter Brabeck, who has steadily rearranged Nestlé's food portfolio in the past 10 years, shedding underperforming businesses and making major acquisitions in pet food, ice cream and diet products. Infant nutrition remains one of the last major gaps in Nestlé's portfolio, particularly in the
In the past several years, Mr. Brabeck has made Nestlé's nutrition business, from sports nutrition to clinical nutrition, a major priority, betting that growth and profits will come from health-related areas.
In 2005, Nestlé's sales from nutrition products amounted to 5.2 billion Swiss francs ($4.3 billion), half of that in infant formula and a third of it from baby food. Along with the Nestlé brand, it also owns the Neslac,
Novartis has also been realigning its business. The company is pursuing three main areas: inventing new prescription medicines; vaccines; and selling low-cost generic drugs and over-the-counter medicines.
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