Swiss food giant Nestle SA won the bidding war for Source Perrier SA on Tuesday and will acquire the French mineral-water company for $2.6 billion in a deal that will make Nestle a dominant force in every major mineral-water market.
The deal is a new sign of global consolidation in the highly competitive packaged food business--further evidence that giants such as Nestle, the Anglo-Dutch-owned Unilever Group and U.S.-based Philip Morris are more inclined to expand their sales and market share by gobbling up smaller companies.
Nestle and Italy’s Agnelli family had been locked in a fight for more than three months for Source Perrier, whose brands of bottled water include Poland Spring, Great Bear and Arrowhead as well as its flagship Perrier. Under the terms of an accord announced at a news conference in Paris on Tuesday, Nestle and its ally Banque Indosuez of France will raise their bid for Perrier to about $2.6 billion from $2.3 billion.
By capturing Perrier, Nestle acquires a lucrative high-profile brand name that is expected to bolster and complement the Swiss firm’s diverse food-related holdings. Perrier has about two-fifths of the French mineral-water market, about one-quarter of the U.S. market and a fifth of the world market. Nestle, known worldwide for its chocolate and coffee products, already owns Vittel brand water.
“The acquisition provides a good fit for Nestle’s food business,” said Dick Curd, a spokesman at Nestle’s U.S.-based food and beverage headquarters in Glendale. “The company has indicated that it is interested in making acquisitions and this deal fits in with Nestle’s long-term strategic plans.”
Indeed, Nestle and its major competitors have shown a growing inclination to wage their global food fight by acquisition--seeking and buying prized food companies for strength and balance as they try to penetrate old and new markets.
For example, top executives at Unilever--which is known for its Lipton brand teas and soups and Ragu pasta sauces--recently expressed interest in acquiring food companies in the United States.
Philip Morris, owner of Marlboro and other cigarette brands and Kraft General Foods, may have prompted other giants to act in August, 1990, when it bought the Swiss-based Jacobs Suchard AG of Zurich, a chocolate and coffee company, for about $4 billion.
That acquisition helped vault Philip Morris into third place among packaged food companies in the European market--just behind Nestle and Unilever in sales. In worldwide food-related sales, Philip Morris ranks second to global leader Nestle and is ahead of Unilever.
“I think you will see the big three (food companies) squabble more over companies on the sales block,” said Sally Schaadt, an industry analyst at Fourteen Research in New York. “Kraft is hoping to expand in international markets. Kraft’s parent (Philip Morris) certainly has the money to make more acquisitions. And Philip Morris wants to diversify to reduce its dependency on tobacco markets.”
Schaadt said Philip Morris is also eager to expand overseas because of limited growth opportunities in the United States.
To be sure, population growth in the United States is relatively slow--limiting the growth potential of food-packaging firms in the North American market, said Ellen Baras, an analyst at Duff & Phelps in Chicago.
“There are more opportunities abroad--particularly in Asia and parts of the Third World,” Baras said, “because population growth is greater and because there is a growing interest in convenient food products in developing countries.”
The Perrier buyout must still be approved by Paris stock exchange authorities. As part of the deal, the Agnelli family and its financial partners dropped their competing $2.3-billion offer for Perrier and agreed to sell their 23.7% stake in the firm to Nestle. The acquisition is part of Nestle’s plans to double its $35.06 billion in sales by the year 2000. The company plans to boost sales not only through takeovers but also through strategic partnerships with major companies.
Nestle last year formed a joint venture firm with Coca Cola Co. to market tea, coffee and chocolate drinks worldwide. The joint venture began to sell the new products in South Korea last October.
The Companies at a Glance Here, at a glance, is a look at Nestle and Source Perrier. Nestle announced Tuesday that it would buy Source Perrier SA for $2.6 billion.
Name: Nestle SA
Headquarters: Vevey, Switzerland
Main businesses: Instant coffee, powdered milk, baby formula, chocolate, frozen and instant foods; owns 49% of L’Oreal SA
Brands: Nestle, Nescafe, Carnation, Hills Bros., Butoni
1991 sales: $35.06 billion
1991 net income: $1.65 billion
Name: Source Perrier SA
Headquarters: Vergeze, France
Main businesses: Still and sparkling mineral water, Roquefort cheese
Brands: Perrier, Poland Spring, Great Bear, Arrowhead
1991 sales: $2.4 billion
1991 net income: $112 million