International ratings agency Standard & Poor’s (S&P) has affirmed its triple-‘A’ long-term and ‘A-1’-plus short-term ratings on Swiss food behemoth Nestlé, following the proposed merger of the group’s US ice-cream operations with Dreyer’s Grand Ice Cream, a leading US ice cream company. The outlook is negative.
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The merger with Dreyer, which is subject to approval by the relevant competition authorities, would result in Nestle’s owning 67% of the combined company. Nestlé has also committed to buying out minority shareholders in 2006 for US$83 per share, which would result in a cash outflow of about US$2.4bn. If the offer is unsuccessful, Nestlé has the right to redeem all outstanding minority shares in 2007 for US$88 per share.
S&P credit analyst Hughes de La Presle said in a press release; “The ratings affirmation reflects the significant strengthening of Nestlé’s position in ice cream in the US, boosting its cash flow generation with no immediate cash outflow.
“In addition, the buyout of Dreyer’s minority shareholders, which is to take place in either 2006 or 2007 for about US$2.4bn, is expected to be manageable within the context of the current ratings.”
Company management is committed to rapidly restoring debt measures to very strong historical levels, thanks to the group’s superior cash flow generation. As a result, S&P said that it expects Nestlé’s financial profile to recover to ‘AAA’ levels, including, notably, a rise in funds-from-operations coverage of lease-adjusted net debt back to about 90% within two years, from 46.4% at year end 2001.
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