Tuesday, June 18, 2002

Nestle dips into Dreyer's

$2.4B deal would create one big ice cream sundae

By Matthew Fordahl
The Associated Press

        Nestle SA agreed Monday to take a majority stake in Dreyer's Grand Ice Cream Inc. as part a $2.4 billion transaction that would allow the Swiss conglomerate to eventually swallow all of California-based Dreyer's.

        The company, which analysts expect will have annual sales of about $1.5 billion, would compete at the same level as the Anglo-Dutch conglomerate Unilever, whose brands include Ben & Jerry's, Good Humor and Breyers.

        “Together, we'll be creating a dream team of the best people, brands, innovation and distribution in the business,” Dreyer's chief executive officer T. Gary Rogers said.

        Pending shareholder and regulatory approval, Nestle will merge its U.S. ice cream business, including the Haagen-Dazs brand, into Dreyer's, which makes the best-selling packaged ice cream in the United States.

        Dreyer's ice cream is marketed under the Dreyer's brand in the western United States and as Edy's elsewhere. The company, founded in 1928, invented Rocky Road ice cream in 1929.

        More recently, Dreyer's has joined with Starbucks Corp. to create specialty coffee-flavored ice cream and with Godiva Chocolatier Inc. for chocolate flavors.

        Nestle would receive 55 million newly issued Dreyer's shares, boosting its stake to 67 percent from the current 23 percent.

        Then, in 2006, Dreyer's shareholders could sell their stock to Nestle for $83 a share. The next year, Nestle has the option of scooping up all outstanding Dreyer's shares for $88 a share.

        “This is a best-case scenario for Dreyer's Grand Ice Cream shareholders,” said John McMillin, a food industry analyst at Prudential Securities.

        The premium — the corporate equivalent of extra whipped cream on a sundae — drove Dreyer's shares up rose more than 57 percent, or $24.50, to $67.29 Monday.
       in Monday trading on the Nasdaq Stock Market. They had closed at $42.79 a share Friday.

        In trading on the Zurich stock exchange, Nestle shares rose 0.6 percent to close at 364 Swiss francs ($233).

        With about 17 percent of the worldwide market, the combined company's brands will be on equal footing with those of Unilever.

        After the deal closes, Dreyer's will be headed by Rogers and based at Dreyer's offices in Oakland, Calif. Nestle will get three additional seats on an expanded Dreyer's board of 10 people. Nestle currently has two of eight board seats.

        Dreyer's president, William F. Cronk, will retire when the deal closes. Rogers and Cronk purchased Dreyer's in 1977 and oversaw its expansion beyond the western United States.

        The deal, expected to result in cost savings of about $170 million annually by 2005, is expected to close by the end of the year.

        In an interview, Rogers said it was too early to tell whether any job cuts will result from the merger.

        “This move underscores our commitment to growing and improving our ice cream business ... in the world's highest per capita consumption market, the USA,” said Peter Brabeck, chief executive of Nestle.

        The deal follows Nestle acquisitions of Germany-based ice cream maker Schoeller Holding AG and the U.S.-based Haagen-Dazs in recent months.

        Dreyer's had first quarter sales of $292 million and a net profit of $1.3 million. Nestle currently has a 13 percent share of the $25 billion annual global ice cream market.

        The marriage of Dreyer's and Nestle was not unexpected, though it's at a price higher than most analysts expected, said McMillin.

        “Nestle and Unilever are emerging as the consolidators,” he said. “And good old American ice cream is going to be owned by foreigners.”


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