Nestlé Acquisition of GerberTable of ContentsNestlé BackgroundGerber BackgroundNovartis BackgroundPast AcquisitionsThe DealThe Effects of the AcquisitionTop Baby Food MakersFuture ExpectationsCalculate the Value of NestléAnswerWhat the CEO of Nestlé had to saySlide 14SourcesNestlé Acquisition of GerberJeff HsuJoe OrvidasTable of ContentsNestlé Background Gerber BackgroundNovartis BackgroundPast AcquisitionsThe DealEffects of AcquisitionFuture ExpectationsNestlé BackgroundFounder of NestléHenri NestléA Swiss CompanyThree different nutrition divisionsHealthcare Nutrition, infant nutrition, and performance nutritionLargest manufacturer of infant nutritional productsGerber BackgroundFounders of GerberDaniel Gerber and Dorothy GerberLargest 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 unitNovartis BackgroundA Swiss CompanyPharmaceutical manufacturerLooking to sell Gerber to streamline portfolio and focus on health carePast AcquisitionsBought Jenny Craig for $600 millionBought medical nutrition division from Novartis for $2.5 billionThe DealIn 1994, tried to acquire Gerber, but lost to SandozNestlé acquired Gerber for $5.5 billion on April 12, 2007Nestlé now holds the largest share of the global baby food marketThe Effects of the AcquisitionBefore the Gerber acquisition, Nestlé had no presence in the U.S.Gerber has 81% of the canned baby food marketTop Baby Food MakersSource: Grocery Headquarters, p.30Future ExpectationsTrying to expand the brand name of Gerber to European countriesProven to have been successful in this areaCost synergies of $95 million by 2011Gerber expected to generate sales of $1.95 billionExpected to grow at 8.5% annuallyCalculate the Value of NestléThe 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 billionB) $201.90 billionC) $243.92 billionD) $287.85 billionE) Not sureAnswer$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 $10.45 + $10.33 + $10.14 + $213.00 =$243.92 billionWhat 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." - Peter Brabeck-Letmathe, CEO of NestléThanks for your attention.Questions?Sourceshttp://www.ir.nestle.comhttp://www.forbes.com/markets/2007/04/12/nestle-gerber-update-markets-equity-cx_po_0412markets07.htmlhttp://www.freep.com/apps/pbcs.dll/article?AID=/20070413/BUSINESS06/704130353Grocery Headquarters, August, 2004,
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