Nestle Sells Haagen-Dazs Unit to PAI Venture for $4 Billion
(Bloomberg) -- Nestle SA is selling its U.S. ice cream business that includes brands like Haagen-Dazs and Drumstick to a joint venture with private equity firm PAI Partners for $4 billion.
The venture, Froneri, was created in 2016 when the Swiss company merged its European ice cream business with PAI-owned R&R. Now it’s expanding to create a stronger challenger to Unilever, the global leader in ice cream with the Ben & Jerry’s and Magnum brands.
The move comes as Nestle Chief Executive Officer Mark Schneider divests slower-growing businesses like its U.S. confectionery operations while focusing on pet food, water and coffee for growth. The shares were little changed early Thursday in Zurich trading.
“Nestle has been up against Unilever for years,” said Duncan Fox, an analyst at Bloomberg Intelligence. “Having complete focus on ice cream makes it more likely for the merged brands to compete against Unilever’s global scale.”
Competition in the U.S. ice-cream market has intensified, as upstarts like Halo Top that offer healthier options eat away at bigger players’ market share. Unilever has responded with postmodern flavors like Turmeric Chai & Cinnamon or Matcha & Fudge.
The U.S. ice cream business being divested had sales of $1.8 billion in 2018, while Froneri had revenue of 2.9 billion Swiss francs ($2.9 billion), Nestle said. The deal will give Froneri a 10% global market share, compared with Unilever’s 18%, according to Bloomberg Intelligence, citing Euromonitor data.
Appetite for Deals
“We see the move as a further step in a managed exit, with a potential eventual endgame of an outright sale of the JV assets to PAI,” Martin Deboo, an analyst at Jefferies, wrote in a note.
Schneider signaled an appetite for deals at Nestle’s most recent financial update in October, after the $10 billion sale of a dermatology unit earlier this year. The company has said it aims to complete a review of its ailing European processed-meat brand Herta by the end of the year, and is said to be considering a sale of its two ailing Chinese units Hsu Fu Chi and Yinlu.
The ice cream deal also follows Nestle’s decision to cut some 4,000 jobs linked to the direct delivery system of frozen pizza and ice cream to stores, and instead transition to a warehouse model to lower costs.
Nestle is “convinced that Froneri’s successful business model can be extended to the U.S. market,” Schneider said in a statement, confirming an earlier Bloomberg report.
The venture is gaining market share, Nestle said. The Swiss company sells Haagen-Dazs in the U.S. while General Mills Inc. makes it for Europe and other markets.
Even as Nestle backs away from ice cream, Unilever says it’s sticking to it. The company said in October that growth over the summer was held back by sluggish performance for the category in Europe, after hot weather a year earlier boosted sales.
“Ice cream is absolutely something we are super committed to,” Hanneke Faber, the Anglo-Dutch company’s president of foods and refreshment, said this month in opening a food innovation center in the Netherlands.
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