Daily Management Review

Nestle Set To Sell Off Most Of Its Water Brands For An Estimated $5 Billion: Reports


Nestle Set To Sell Off Most Of Its Water Brands For An Estimated $5 Billion: Reports
In continuation of its strategy of exiting the slow-growth businesses, the largest food group of the world Nestle is all set to start off the process for selling off of its North American water brands including Pure Life and Poland Spring, said reports quoting sources familiar with the matter.
Other brands of the company such as Deer Park, Ozarka, Ice Mountain, Zephyrhills and Arrowhead could also be included in the sell off and the company expects to generate about $5 billion from the deal calculated on the back of core earnings of around $600 million, said the sources according to the reports.
Since taking over the reign of the company in 2017, Nestle chief Mark Schneider has acquired and sold about 50 businesses. According to sources, Schneider wants to hold on to control of the premium water brands of the company such as Perrier and San Pellegrino while divesting the rest of the brands.
In June, Schneider had said that he was planning on shifting focus of Nestle’s business towards the better performing water brands which including Acqua Panna while the other not so well performing brands would be put under review for divestment.
Sources said that it is expected that interest in the deals would be shown by private equity funds such as Apollo, that focus on turnaround deals and implementing cost cutting strategies to improve profit.
The sources said the sale, which has also reportedly drawn the attention of some industry players, will be organised by Morgan Stanley.
Sources also reportedly told the media that companies that could show interest in bidding for the water brands could include the Dutch bottling company Refresco, which has a large business presence in the United States. Sources said that the company could bid on its own or in partnership with a financial investor.
Sources also said that interest in the deals could also be expressed by companies like Primo Water and Niagara Bottling.
Reports quoted sources saying that Nestle wants to get the first round of bidding to get over by the end of October.
There were no comments on the issue available from Nestle, Refresco, Morgan Stanley Apollo, Primo and Niagara.
In 2019, total revenue from sale generated by the assets on the block was about 3.4 billion Swiss francs ($3.72 billion).
Even without the impact of the novel coronavirus pandemic, there was a 2 per cent decline in the sale for the water brands last year and the brands could generate between $4.9 billion and $5.9 billion for Nestle, Guggenheim analysts said.
However, an estimate of closer to 3 billion Swiss francs ($3.28 billion) for the brands was made by Jefferies which also added that market share to private labels had been lost by Nestle while the actual growth in the packaged water industry can be seen in sparkling brands like La Croix and PepsiCo's Bubly.