Nestle Acquires Kraft's Frozen Pizza Business
Adds Tombstone, other brands to its food portfolio; says it won't pursue Cadbury
Published in CSP Daily News
VEVEY, Switzerland -- Nestle has agreed to acquire Kraft Food's frozen pizza business in the United States and Canada for $3.7 billion in cash. The business includes brands such as DiGiorno, Tombstone, California Pizza Kitchen, Jack's and Delissio.
Kraft, Northfield, Ill., said it will use the proceeds of this sale to help fund is offer to purchase U.K.-based confectioner Cadbury plc (see related story). After discussions with the U.K. Takeover Panel, Nestle confirmed that it does not intend to make or participate in a formal offer for Cadbury, as had been rumored.This frozen [image-nocss] pizza business provides a new strategic pillar to Nestle's frozen food portfolio in the United States and Canada, where the company has already established a leadership in prepared dishes and hand-held product categories under the Stouffer's, Lean Cuisine, Buitoni, Hot Pockets and Lean Pockets brands. The acquisition brings leadership in the frozen pizza category, where Nestle only had a minor presence until now, and builds on Nestle's existing pizza know-how and operations in Europe. It is a natural fit with Nestle's focus on delivering convenient, premium, wholesome and nutritious frozen food for consumers around the world.
The transaction is subject to U.S. and Canadian regulatory approval and is expected to be completed in 2010.
Paul Bulcke, CEO of Vevey, Switzerland-based Nestle, said: "This frozen pizza business greatly enhances Nestle's frozen food activities in North America, bringing together a selection of great US and Canadian brands, industry-leading R&D and excellent route-to-market capabilities, which complement our existing ice cream direct-store-delivery. With total sales of around CHF 3 billion, Nestle will become the world leader in the attractive, fast-growing frozen pizza category."
The United States is the largest pizza market in the world with consumer sales of about $37 billion. With estimated sales of $2.1 billion in 2009, Kraft is a leader in the frozen pizza category and has enjoyed double-digit growth in the U.S. and Canada over the last four years, it said.
The DiGiorno and California Pizza Kitchen brands have driven the development of the premium segment, providing consumers and families attractive alternatives to eating out and home-delivered pizzas. Delissio is the leading frozen pizza brand in Canada, the company said.
The business will be part of Glendale, Calif.-based Nestle USA. "Our combined capabilities in direct-store-delivery, R&D, innovation and commitment to quality, taste and convenience make this a good strategic fit with our frozen food portfolio," said Brad Alford, chairman and CEO of Nestle USA.
The business has an estimated 2009 earnings before interest, taxes, depreciation and amortization (EBITDA) of $297 million or 14.2% of sales, and an estimated EBIT of $279 million. Synergies, estimated at 7% of sales, will be fully realized within five years. On a pre-synergy basis, the transaction is priced at 1.8 times estimated 2009 sales and 12.5 times estimated 2009 EBITDA.
The acquisition will enhance Nestle's earnings per share in the first full year of ownership, it said.
Nestle brands include Nestle Toll House, Nestle Nesquik, Nestle Coffee-Mate, Stouffer's, Lean Cuisine, Hot Pockets and Lean Pockets Brand Sandwiches, Nescafe, Nescafe Taster's Choice, Nestle Juicy Juice, Buitoni, Dreyer's/Edy's, Nestle Crunch, Nestle Butterfinger and Wonka. Nestle USA, with 2008 sales of $10 billion is part of Nestle SA in Vevey, Switzerland, with 2008 sales of $101 billion.