18 January 2001
 Friskies and Ralston Purina Merge |
The world's largest food company,
Nestlé
has combined its
Friskies
pet food business in a
deal with dry pet food company
Ralston Purina.
The friendly merger creates a $6.3 billion worldwide pet-care business with Nestlé paying $33.50 per share giving Ralston Purina shareholders a significant premium over the recent market value of their stock, (36 percent over the closing price on Friday, January 12, 2001). Both Corporations see this major strategic transaction as the ideal way to benefit from their combined know-how, complementary strengths and international presence in the growing pet-care market. Ever since it acquired the Friskies business with Carnation in 1985, Nestlé has considered pet-care as a strategic growth area and it has repeatedly strengthened it through further acquisitions. In 1998 Nestlé acquired Spillers adding to its Alpo business. Last year Nestlé also took on Cargill Argentina. Mr. Rainer E. Gut, Chairman of Nestlé S.A., stated: "This merger is not only in line with the long-term strategic approach of Nestlé, but the complementary strengths of Nestlé and Ralston Purina will accelerate both the growth and the performance of the Nestlé Group." Mr. William P. Stiritz, Chairman of Ralston Purina, added: "This is a great deal for our share-holders and our Company. Shareholders are receiving a significant premium over the current market price of Ralston Purina's stock, while our business will be joining forces with the world's leading food company. Together, Ralston Purina and Nestlé will be able to take this pet-care business to levels that would not have been possible as separate entities." Nestlé expects that combining the two operations to produce significant operating efficiencies from such areas as Research & Development, marketing and admini-stration, as well as in sales, distribution and manufacturing. Savings identified to date by Nestlé should reach US$ 260 million annually and Nestlé expects that these will be fully achieved by 2003. Nestlé also hopes that Friskies' market position in Europe and in other countries will allow it to quickly internationalize Ralston Purina's science-based product lines and thus to significantly expand its business in the premium sector. Mr. Peter Brabeck-Letmathe, CEO of Nestlé said: "We have seized a unique opportunity to merge two organizations that share a similar outlook and similar cultures. Combining Ralston Purina's strength in pet-focused research and development, its strong position in dry dog food, and its specialized know-how and access to key sales channels with Friskies' broad international presence and its leadership in wet cat food, will create a strong competitor in an increasingly innovative, growing and profitable market." The US Friskies business will be merged with the existing Ralston Purina organization. The new organization will be called Nestlé Purina Pet Care Ralston Purina, with its global Purina brand, had North American pet-care sales of more than US$ 2.25 billion in 2000, and international sales, mainly in Latin America and Europe, of almost US$ 450 million. Wasserstein Perella acted as financial advisor to Ralston Purina. Nestlé called on Credit Suisse First Boston and on Greenhill & Co. as financial advisors. According to Ralston Purina's president and CEO, Patrick McGinnis, the companies will be moving with as much alacrity as possible through the governmental approval processes required for such a merger. The deal has cought the eye of regulators in the US and Europe who are going to be looking very closely at the anti-trust issues raised by the merger. Nestlé said recently it had sufficient funding to finance the acquisition of the Ralston Purina Company, but that it will also arrange a rolling financing facility. Nestlé had US$5.3 billion (8.7 billion francs) in cash and other liquid assets at the end of June 2000. At 18.6 times earnings before interest and taxes, analysts described the price offered for Ralston as quite high but also said Nestlé will be able to absorb it as Ralston has a high earnings before interest and taxes margin of 21%. Apparently Nestlé will use around US$7 billion of debt to pay for Ralston with the rest coming from its own resources. Nestlé's chief financial officer, Mario Corti said the cost of the capital used for the deal would be less than 6%. It would be earnings neutral for Nestlé immediately after the deal, but will grow 2% at the end of the first year and up to 3% beyond that. Corti said Nestlé will not issue fresh equity but would sell Ralston's stakes in DuPont, Conoco and Interstate Bakeries, (IRIN Company Summary), aggregating US$900 million. It could also sell its so-called Treasury stock, (Nestlé shares that the company owns itself). Nestlé S.A. is the largest food company in the world with approximately 231,000 employees and 522 manufacturing sites generating $48+ Billion in Sales and is headquartered in Vevey, Switzerland. In this form: Copyright 2001 Steve O'Malley (UKPets). This article may be reproduced with permission of the author and correct attribution to the source. |