Nestle to explore strategic options for US confectionary business

Published: 06/16/2017, 3:55:01 PM

Nestle, the world's largest packaged food maker, to explore strategic options for U.S. confectionery business, which accounts for 1% of its global sales, according to Reuters.

Shares up 1.8% and are among the biggest boosts on the pan-European STOXX 600 on the day.

Jefferies says low- to mid-teens multiple would imply sale price of US$1.5 billion to US$2 billion, with impact on Nestle "likely to be small."

Jefferies says anticipates interest from tertiary players like Ferrero or Perfetti Van Melle, and private equity, but can't rule out a consolidating move by Hershey or Mars, or effort by Mondelez International to strengthen distribution network.

Analysts say it's the first big strategic decision by new chief executive, Mark Schneider, who took over on 1 January, the first outside hire in nearly a century.

Confectionery business margins globally are 13.7%, below Nestle's overall margin at 15.3%. Business has been losing share of the U.S. chocolate market for three years straight, according to Bernstein Research, and is the No. 4 player in a weak market that is off-trend with U.S. consumers.

Still, Bernstein says "somewhat disappointed" by the move, saying it suggests "a prioritization of short-term, and perhaps medium-term, financial results, which may please some investors, but it seems short-sighted for a company that prides itself on taking the longer-term view."

Bernstein says that without a business in the US, Nestle weakens its ability to compete for other assets that may come up for sale, such as Lindt or Ferrero, or to manage the U.S. KitKat business, should those rights ever revert to Nestle, as may happen if Hershey gets acquired by someone else.

Bernstein says is reminded of Unilever's disposal of its U.S. laundry and home care business in 2007, a move by former CEO Patrick Cescau that current CEO Paul Polman has expressed regret over.