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of Gerber
Jeff Hsu
Joe Orvidas
Table of Contents
Nestlé Background
Gerber Background
Novartis Background
Past Acquisitions
The Deal
Effects of Acquisition
Future Expectations
Nestlé Background
Founder of Nestlé
Henri Nestlé
A Swiss Company
Three different nutrition divisions
Healthcare Nutrition, infant nutrition, and performance
nutrition
Largest manufacturer of infant nutritional products
Gerber Background
Founders of Gerber
Daniel Gerber and Dorothy Gerber
Largest seller of baby food in U.S.
In 2000, Gerber began selling a line of powders,
oils and other toiletries for children
In 2002 it launched microwaveable meals for
older toddlers
Has a life insurance unit
Novartis Background
A Swiss Company
Pharmaceutical manufacturer
Looking to sell Gerber to streamline
portfolio and focus on health care
Past Acquisitions
Bought Jenny Craig for $600 million
Bought medical nutrition division from
Novartis for $2.5 billion
The Deal
In 1994, tried to acquire Gerber, but lost to
Sandoz
Nestlé acquired Gerber for $5.5 billion on April
12, 2007
Nestlé now holds the largest share of the global
baby food market
The Effects of the Acquisition
Before the Gerber acquisition, Nestlé had
no presence in the U.S.
Gerber has 81% of the canned baby food
market
Top Baby Food Makers
90%
80%
70%
60%
50%
40%
Market Share (%)
30%
20%
10%
0%
Gerber Beech- Del Other
Nut Monte
Corp. Foods
Source: Grocery Headquarters, p.30
Future Expectations
Trying to expand the brand name of Gerber to
European countries
Proven to have been successful in this area
Cost synergies of $95 million by 2011
Gerber expected to generate sales of $1.95 billion
Expected to grow at 8.5% annually
Calculate the Value of Nestlé
The expected cash flow at the end of the year is $11.5 billion
(FCF1). Assuming a growth rate of 8.5% for the next two
years, the cash flows are $12.5 billion (FCF2) and $13.5
billion (FCF3), respectively. Then assume that the future
cash flows will grow at a constant growth rate of 5% for the
fourth year and beyond. Use a 10% cost of capital. Find the
present value of the future cash flows.
A) $180.58 billion
B) $201.90 billion
C) $243.92 billion
D) $287.85 billion
E) Not sure
Answer
$11.5 billion / (1+.1)^1 = $10.45 billion
$12.5 billion / (1+.1)^2 = $10.33 billion
$13.5 billion / (1+.1)^3 = $10.14 billion
[[$13.5 billion x (1.05)] / (.1-.05)] x
(1/1.1)^3 = $213.00 billion
=$243.92 billion
What the CEO of Nestlé had to say
"The acquisition of Gerber is the perfect complementary
fit. It not only gives Nestlé the leadership position in baby
food, but it also constitutes a decisive step to establish
Nestlé Nutrition as the undisputed global leader in the
nutrition field. This is a major step in the transformational
journey of Nestlé toward a Nutrition, Health and
Wellness Company. It is my great pleasure to welcome
the employees of Gerber to the Nestlé Group."
Questions?
Sources
http://www.ir.nestle.com
http://www.forbes.com/markets/2007/04/12/nestle-gerber-update-
markets-equity-cx_po_0412markets07.html
http://www.freep.com/apps/pbcs.dll/article?
AID=/20070413/BUSINESS06/704130353
Grocery Headquarters, August, 2004, p.30