Nestlé has confirmed it has moved its ice-cream business in Israel into the Froneri venture co-owned with PAI Partners.

Speculation had serviced earlier in the year Nestlé was lining up to transfer Noga into the Froneri business in which the world’s largest food maker owns a 50% stake.

Froneri was set up in 2016 by Nestlé and PAI Partners, which owned UK-based international supplier R&R Ice Cream. Froneri combined Nestlé’s and R&R’s ice cream operations in Europe, the Middle East, Argentina, Australia, Brazil, the Philippines and South Africa. Markets including the US and Israel, however, were not part of the deal at the time.

Alain Oberhuber, a consumer goods analyst at MainFirst Schweiz, believes the deal marks another step toward Nestlé exiting the ice cream category altogether, and speculates the Swiss business will now start to gradually sell-off its related operations in North America.

However, Oberhuber is of the opinion that Nestlé is doing the right thing in divesting “low-performing assets”.

He adds: “We continue to believe that Nestlé will completely exit its ice cream business in the future. The first step will be the divestment of North American brands of Dreyer’s, Edy’s, Outshine, Skinny Cow and Wonka. The second step will be the divestment of its North American businesses Drumstick, and then Häagen-Dazs in North America. Finally, we assume that there will be a couple more divestments announced in due course in other categories.”

With the purchase of Noga, all of Nestlé’s ice cream operations in Europe, the Middle East and North Africa (EMENA) will now come under the Froneri group. However, the deal, conducted for an undisclosed sum, is still subject to regulatory approval.

Ibrahim Najafi, the chief executive of Froneri, said: “We’re very excited to be building on the strengths of our existing joint venture with Nestlé. By entering Israel we’re continuing to realise our vision of becoming the world’s best ice cream company.”

Noga’s brands include La Cremeria, Cookilida, Crunch and Gumigum. The company’s management will remain after the transaction is completed.

Froneri’s stable of brands, either its own or those co-owned with Nestlé, consist of Nui, Movenpick, Maxibon and Connoisseur, among others. 

Marco Settembri, the CEO of Nestlé’s EMENA division, added: “With its continued growth and global prominence in the ice cream market, Froneri’s success speaks for itself. This milestone deal marks the final stage of the transition of our EMENA ice cream businesses into Froneri, further strengthening its presence in the region.”

Oberhuber estimates Nestlé still generates ice cream revenues of CHF2.5bn (US$2.5bn) from its operations in North America, Peru, Chile, China, Thailand and Malaysia. And North America accounts for the majority of that, he said.

He adds the average EBIT margin of those operations is around 4.5%, below the 9.2% underlying trading operating profit margin of Froneri. After the Osem transaction, Froneri will have revenues of more than CHF2.7bn, Oberhuber said.

“We assume that Nestlé could have sold Osem’s ice cream activities for one times sales or 20x EBIT,” the analyst said. “Based on lower growth rates and operating margins, the transaction multiple of Osem ice cream is significantly below the multiple paid for Haagen-Dazs 3.7 times (2002) and Dreyer’s 1.7 times (2002), but higher than Schöller of 0.6 times (2001).”