Nestle Buys Kraft’s Frozen Pizza Business

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One day after selling its majority stake in Alcon, Nestle has purchased Kraft’s frozen pizza division. BusinessWeek has details:

On Jan. 5, Nestlé announced it would acquire the U.S. frozen-pizza business of Kraft Foods for $3.7 billion. The pizza acquisition, which brings it such brands as DiGiorno, Tombstone, and California Pizza Kitchen, will expand its frozen-foods business in the crucial U.S. market where its current holdings include Lean Cuisine and Stouffer’s.

And Nestlé got an attractive price– equal to 12.5 times the Kraft pizza business’s earnings before tax, depreciation, and amortization – because the U.S. food company was eager to raise money to sweeten its bid for Cadbury. “It was probably Kraft that knocked on Nestlé’s door,” says James Amoroso, an independent food-industry analyst based in Walchwil, Switzerland. (Nestlé had been seen as a possible suitor for parts of Cadbury, but took itself out of the running on Jan. 5.)

The Wall Street Journal offers an overview of Nestle’s current strategy:

The moves underscore the transformation of Nestlé, already the world’s largest food-and-beverages producer by sales, into a more focused company.

It now has just one big nonfood asset left, a 29% stake in French cosmetics giant L’Oreal SA, which for the time being can’t be altered due to a complex contract with the other big shareholder, the Bettencourt family.

Following Nestlé’s deal with Kraft, which will use the net proceeds to sweeten its offer for Cadbury PLC, the Swiss company will become a dominant frozen-pizza player in North America, the world’s largest market worth $37 billion, in which it has played a marginal role so far. The transaction is expected to close this year, pending regulatory approval.

Many market watchers now expect Nestlé to increase the pace of takeovers. Among the companies believed to be on its radar screen are Mead Johnson Nutrition Co., parts of Abbott Laboratories or Fresenius SE’s clinical nutrition operations. And in a recent study, Nomura suggested Nestle may at some stage consider a bid for General Mills Inc., its joint-venture partner in the area of cereals.