Nutella maker Ferrero to pay $2.8 billion for Nestle’s U.S. candy unit

Nestle agreed to sell its U.S. confectionery unit to Ferrero, the Italian maker of Nutella, in the first substantial step away from the candy industry by the company that invented milk chocolate.

The sale of the unit, which includes the Butterfinger and Baby Ruth brands, is also the first major divestment by the Swiss food giant since Chief Executive Mark Schneider took the helm last year. Nestle plans to focus on healthier and faster-growing categories such as coffee, pet food and water as the food industry grapples with a drop in demand for sugary products.

“Our commitment to invest in the U.S. is as big as ever,” Nestle USA chief Paul Grimwood said on a call.

The U.S. chocolate industry is in tumult. Hershey Co. has been cutting 15% of its workforce, and on Tuesday, Lindt & Spruengli reported its weakest organic sales growth since 2009 amid sluggish demand in North America.

The Nestle unit, which also includes brands like Oh Henry!, Laffy Taffy and Nerds, is suffering a decline in revenue and had sales of about $900 million in 2016. Nestle said in a statement announcing the sale that it remains “fully committed” to its chocolate business around the world. That includes KitKat, which it produces globally except for in the U.S., where Hershey owns the rights.

Closely held Ferrero has been pushing harder into the U.S. Last year it snapped up Ferrara Candy Co., the maker of Red Hots and Lemonhead candies, as well as confectioner Fannie May.

The Nestle sale to Ferrero — which does not include the Toll House brand of baking products — is expected to close around the end of the first quarter, Nestle said. The business represents about 3% of the Swiss company’s U.S. sales. Nestle USA used to be based in Glendale, but last year it announced it would move its headquarters to Rosslyn, Va.

Nestle said in June that it was considering options for the U.S. confectionery unit, and said it attracted significant interest from bidders in July. In December, the company said it expected to sell the business in the first quarter of 2018.

Hershey, which was named as one of the potential bidders, agreed last month to pay $921 million for Amplify Snack Brands Inc. to expand into popcorn and potato chips.

Gretler writes for Bloomberg.