Nutella owner Ferrero acquires Nestlé’s US candy business for $2.8bn

By Douglas Yu contact

- Last updated on GMT

Ferrero is now the world's third largest chocolate player after acquiring Nestlé's US candy business. Pic: CN
Ferrero is now the world's third largest chocolate player after acquiring Nestlé's US candy business. Pic: CN

Related tags: Confectionery business, Ferrero spa, Investment, Nestle, Us

Nestlé has sold its US candy business ($924m in 2016 sales), which includes Butterfinger, Baby Ruth and Raisinets, to Nutella maker Ferrero for $2.8bn in cash.

The deal, which covers the US-focused confectionery brands only and does not include Nestlé’s Toll House baking products, is expected to close around the end of the first quarter of 2018 following the completion of customary approvals and closing conditions. 

Ferrero will acquire Nestlé’s US manufacturing facilities in Bloomington, Franklin Park and Itasca, Illinois, and the confectionery-related employees, and will continue to operate through the offices in Glendale, California, as well as from its other current locations in Illinois and New Jersey.

Nestlé's US brands

Nestlé’s US confectionery business posted CHF 900m ($924m) in sales in 2016 and comprises the brands:

crunch prnewswire
Source: PRNewswire/Nestlé

Crunch, Butterfinger, BabyRuth, 100Grand, SkinnyCow, Raisinets, Chunky, OhHenry! and SnoCaps

Sugar Confectionery
SweeTarts, LaffyTaffy, Nerds, FunDip, PixyStix, Gobstopper, BottleCaps, Spree and Runts

Nestlé CEO, Mark Schneider, said: “With Ferrero we have found an exceptional home for our US confectionery business where it will thrive. At the same time, this move allows Nestlé to invest and innovate across a range of categories where we see strong future growth and hold leadership positions, such as pet care, bottled water, coffee, frozen meals and infant nutrition.”​ 

Since Nestlé announced it would divest​ ​its US confectionery arm in June last year due to low market share in the US, several confectioners and private equity firms reportedly joined the bid, with Ferrero and Hershey submitting their final proposals.

Ferrero: Number three in US chocolate

Euromonitor’s senior food and nutrition analyst, Raphael Moreau, said the deal makes Ferrero the “third largest [chocolate] player in the world.”

“Nestlé’s (7.9% US market share) the most prominent chocolate confectionery brand in the US, Butterfinger, has suffered against brands with a more premium positioning including Lindt (9.3% share) and against larger players such as Mars (27.1%),”​ he said.

The challenge for Ferrero is that Nestlé’s brands are not positioned as premium. “Their (Nestlé) turnaround and a successful integration into Ferrero’s brand portfolio would be uncertain,”​ added Moreau.

Ferrero, who currently operates Ferrero Rocher, Nutella and Tic Tac in the US, has actively invested in the market recently: it acquired premium chocolate brand Fannie May​ and gummy maker Ferrara​ last year in addition to opening its first Nutella café​ in Chicago.

What next for Nestlé in confectionery?

Nestlé said it remains committed to international confectionery, particularly its global brand KitKat.

KitKat is produced in the US under license by Hershey and was excluded from the Ferrero deal.

Alain Oberhuber, CEO of consumer goods analyst MainFirst Schweiz, said an analyst’s note:“Going forward, we believe Nestlé to focus on its remaining international brand Kit Kat (around CHF 1.3bn/$1.35bn sales) and to invest in Cailler (CHF 125m/$130m sales) and Perugina (CHF 190m/197m sales), while we see divestment potential for other brands such as Aero (CHF 180m/$187m sales) and Crunch (CHF 130m/$135m sales outside US).”

Has Nestlé strengthened a competitor?

Andrew Wood, senior research analyst at Sanford C. Bernstein, said in a note selling the US business was a positive move and he appreciated the strategic rationale for the disposal.

“Nestlé's US Confectionery business has sales of CHF 900m ($925m) and so is around 1% of total company sales, 3% of US sales and 10% of global Confectionery sales.”

However, he said: “…We continue to note the divergence with the views of the highly-regarded former Nestlé CEO and Chairman, Peter Brabeck-Letmathe, who used to state that to be a strong global leader you must be strong in the world's biggest and strongest market (the US).

“In this context, through this transaction, Nestlé has strengthened one of its major global competitors.”

[Additional reporting by Oliver Nieburg]

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Kit Kat is not part of the deal pls read it again Manikandan Kumar

Posted by ian joseph wong,

Kit Kat is not part of the deal pls read it again Manikandan Kumar

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Does the deal include Kit Kat?

Posted by Manikandan Kumar,

Does the deal include Kit Kat also?

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