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Nestlé forced to sell Brazilian unit

06-Oct-2004

Switzerland's Nestlé will have to sell its Brazilian chocolate business Garoto, acquired in 2002, after the authorities there ruled that the takeover would damage competition, proof that even the world's biggest food company cannot always have things its own way.

CADE, the Brazilian antitrust regulator, ruled in February that the $230 million acquisition should be blocked on the grounds that the addition of Garoto would give Nestlé control of half the local chocolate market, a position open to abuse.

But Nestlé appealed against the ruling, saying that it would sell a number of brands in order to reduce its market share to a more acceptable level - around 40 per cent - if it were allowed to keep control of Garoto.

This concession was enough to win some support from the CADE appeal panel, but not enough to obtain a reversal of the original decision. Three of the five panel members voted against the deal, saying that even the sale of the brands would not be enough to maintain competition in Brazil's $900 million chocolate market, not least because the brands disposed of would suffer as a result of no longer being supported by Nestlé's substantial marketing budget.

The Swiss company is not prepared to give up the fight, however. "The very close decision reflects that the issue is not clear. The company will now analyse the outcome and condition under which decision was reached and will make use of all the possibilities to safeguards its interests in the issue," Nestlé spokesman Francois-Xavier Perroud is quoted as saying by Bloomberg.

"It is clear that we are not accepting this decision," he added, although the report stressed that no course of action had as yet been taken.

If the CADE ruling is confirmed, Nestlé will have five months to find a buyer for Garoto, but the relatively short timescale is unlikely to pose much of a problem with several of Nestlé's leading rivals already suggesting an interest. Cadbury Schweppes, the British group whose complaint about the Garoto takeover prompted the CADE investigation, is one potential buyer, while US-based Mars, Hershey and Kraft could also be in the running.

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