Busy start to new year for Nestle as firm focuses on core products
For Nestle, the world's biggest food company, the first week of 2010 has seen it refocus on core product categories.
On Tuesday, the Swiss company said it was paying $3.7bn (e2.5bn) for Kraft's frozen pizza business in the United States and Canada, as the maker of Philadelphia cream cheese off-loads the asset to help fill its coffers in preparation for a tough battle to acquire Cadbury.
Nestle has been weaning itself from its non-food businesses, and this week also sold its remaining stake in American eye care unit, Alcon, to Novartis for $28.1bn (€19.5bn).
It has netted a total of about $40bn (e27.7bn) from off-loading the entire Alcon division that it acquired a majority stake in back in 1977.
It's been gradually reducing its stake in Alcon since 2002, when it launched a stockmarket flotation of the business. A 30pc stake in L'Oreal is unlikely to be sold any time soon, though. Nestle also provided clarification this week on its stance regarding Cadbury.
There had been speculation that Nestle could have tabled a bid for the maker of Dairy Milk and Creme Eggs as Kraft weighed in with its £10.9bn (€12.1bn) offer.
Nestle has now said that it won't participate in any bid for Cadbury, leaving it with a massive CHF29bn (€19.5bn) to play with.
The company has already told shareholders that it will return the equivalent of €6.75bn to them, while no plans for the remainder of the cash pile have yet been divulged. Options for Nestle include paying down fairly substantial existing debt, and using the money to make further acquisitions.
Kenneth Zaslow, an analyst with BMO Capital markets, believes that Nestle could capitalise on the current bidding for Cadbury by buying more units from Kraft, or from other potential bidders that may also need to raise cash.
Some analysts think Nestle could also use the money to begin another share buyback in the middle of next year.
Olaf Toelke, an analyst with Standard & Poor's, told a Swiss radio station this week that he expects Nestle to use its spare cash for both paying dividends to shareholders and buybacks, as well as acquisitions.
Bank Sarasin analyst Patrick Hasenboehler told the same station that he believes Nestle will target emerging markets.
"The focus is clearly to invest in new factories, to buy distribution channels and so on, I think because it's not so easy to acquire suitable companies in emerging markets," he said.
Yesterday, shares in the company were trading down nearly 1.6pc in Switzerland at CHF48.96.