Blog: Dean BestCould Nestle be weighing up major M&A move outside food?

Dean Best | 12 October 2017

Pfizer has this week announced it is reviewing the options it has for its consumer healthcare business. Might Nestle be interested?

The announcement from the US-based pharma giant has sparked talk among the equity analysts following Nestle that the world's largest food maker could be interested in buying an entity that includes Advil painkillers and Centrum vitamins.

In June, Nestle outlined where it plans to focus its resources on trying to drive growth and one of its strategies is to "pursue growth opportunities in consumer healthcare".

The statement came days after activist investor Third Point bought a stake in Nestle and called on the business to shake up its "staid culture".

However, the KitKat and Maggi owner insisted its management and board had earlier this year reviewed its "priorities", as well as the company's capital structure, to improve the group's ability to "deliver on its value creation model".

Could Nestle sell value in Pfizer's consumer healthcare arm?

Pfizer's consumer healthcare business generated revenues of US$3.41bn in 2016, a slight rise from the $3.4bn booked for 2015.

Sanford Bernstein food, home and personal care analyst Andrew Wood says Pfizer's consumer-health business is the fourth-largest in the sector, with "good market share in two of the biggest categories: vitamins and dietary Supplements and analgesics".

However, Wood believes Nestle may not make a move. "This will still be a big (Nestle's biggest ever), risky, ROIC-dilutive deal in a fairly new category. An analysis of Schneider's comments at [Nestle's] recent investor seminar suggests that this deal may be too far from Nestlé's core competencies of nutrition and skin. We cannot see Nestle operating in analgesics and cough and cold products…or buying Pfizer just to sell some significant parts/brands it does not want."

Alain Oberhuber, another analyst following Nestle who works for Swiss financial services firm MainFirst, suggests the company could be weighing up an approach but also argues a move may not materialise.

"We assume that some of these categories look interesting for Nestle, in particular the dietary supplement Centrum, calcium supplement Caltrate and the heal and wellness lifestyle brand Emergen-C and Chap Stick. These products would fit into Nestle’s health science as well as skin health," Oberhuber says. "However, the over-the-counter business does not fit into Nestle’s portfolio. Furthermore, the potential price of 4.5-5x revenues looks stretched and we remember CEO Mark Schneider who mentioned in one of statements that it is not the time for larger acquisitions."

Sectors: Mergers & acquisitions

Companies: Nestle

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