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Nestle closes $2.8 billion Dreyer's deal after clearing final hurdle with FTC: Swiss conglomerate is sitting pretty as largest player in US ice cream market. But it had to give up on some premium brands--and suffer a cut in its credit rating. (Ice Cream Scoops).

Swiss food conglomerate Nestle S.A. completed its $2.8 billion acquisition of Dreyer's Grand Ice Cream June 26, after the US Federal Trade Commission (FTC) okayed the deal. But Nestle said it is now through with buying ice cream brands or manufacturing units.

One factor is that the company has borrowed heavily already to finance a series of acquisitions, and might have to go deeper in debt to buy out the 33% of Dreyer's it isn't already acquiring in the present deal. The option price is $2.6 billion. For that reason, Moody's downgraded Nestle's credit rating as soon as the FTC cleared the Dreyer's takeover.

As the price of FTC approval, Nestle agreed to divest the superpremium brands Dreamery and Godiva as well as Whole Fruit sorbet to CoolBrands International within 10 days of the Dreyer's takeover, and also turn over its distribution assets to CoolBrands within the same period.

"We have structured this settlement to preserve the significant competition that would have been lost by this merger," said Joe Simons, director of the FTC's Bureau of Competition. US consumers spend about $600 million each year on superpremium ice cream, the agency observed.

The FTC had sought a preliminary injunction in March to block the $2.8 billion deal, asserting it would violate antitrust laws by eliminating competition and raising prices for superpremium ice cream. At the time, the companies scrambled to divest themselves of brands to satisfy the FTC.

Nestle will continue to market superpremium ice cream under the Haagen-Dazs banner, but the proposed FTC order also requires that Dreyer's make its license to manufacture, distribute and sell Starbucks superpremium ice cream nonexclusive and allow Mars and Ben & Jerry's to terminate their relationships with Dreyer's.

"The transaction concludes the acquisition phase in the ice cream sector," Nestle Chief Executive Peter Brabeck said. Analysts agreed it doesn't make sense for the company to pursue any further such ventures.

"The takeover fits into the Nestle strategy to strengthen the ice cream business," observed Zuercher Kantonalbank analyst Patrik Schwendimann. "However, the price is not cheap and the long-term growth prospects in the ice cream business are only moderately attractive."

Nestle now owns around 67% of the stock of Dreyer's Holdings, a new public company that holds the US frozen dessert business of both Dreyer's and Nestle. Timothy Kahn, former chief financial officer of Dreyer's, is to be chief operating officer at Dreyer's Holdings, and will also be in charge of integration. Alberto Romaneschi is to become chief financial officer.

Despite the concessions, the takeover puts Nestle right up there in the $30-billion global ice cream market alongside Anglo-Dutch group Unilever. And Nestle is not all that upset about what it had to give up. "The margins on these brands are lower than on Dreyer's own brands. It accelerates the focus on Dreyer's own brands," said spokesman Francois Perroud. "You're simplifying your logistics chain and you get overall a better margin."
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Title Annotation:Nestle S.A. completes $2.8 billion acquisition of Dreyer's Grand Ice Cream
Publication:Quick Frozen Foods International
Geographic Code:1USA
Date:Jul 1, 2003
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