Nestle selling US ice cream business for €3.59bn

Company includes brands like Haagen-Dazs and Drumstick

Photograph: iStock

Photograph: iStock

 

Nestle is selling its US ice cream business that includes brands like Haagen-Dazs and Drumstick to a joint venture with private equity firm PAI Partners for $4 billion (€3.59 billion).

The venture, Froneri, was created in 2016 when the Swiss company merged its European ice cream business with PAI-owned RandR. Now it’s expanding to create a stronger challenger to Unilever, the global leader in ice cream with the Ben and Jerry’s and Magnum brands.

The move comes as Nestle chief executive Mark Schneider divests slower-growing businesses like its US confectionery operations while focusing on pet food, water and coffee for growth. The shares were little changed early Thursday in Zurich trading.

“Nestle has been up against Unilever for years,” said Duncan Fox, an analyst at Bloomberg Intelligence. “Having complete focus on ice cream makes it more likely for the merged brands to compete against Unilever’s global scale.”

Competition in the US ice-cream market has intensified, as upstarts like Halo Top that offer healthier options eat away at bigger players’ market share. Unilever has responded with postmodern flavours like turmeric chai and cinnamon or matcha and fudge.

The US ice cream business being divested had sales of $1.8 billion in 2018, while Froneri had revenue of 2.9 billion Swiss francs (€2.65 billion), Nestle said. The deal will give Froneri a 10 per cent global market share, compared with Unilever’s 18 per cent, according to Bloomberg Intelligence.

Appetite for deals

“We see the move as a further step in a managed exit, with a potential eventual endgame of an outright sale of the JV assets to PAI,” Martin Deboo, an analyst at Jefferies, wrote in a note.

Mr Schneider signalled an appetite for deals at Nestle’s most recent financial update in October, after the $10 billion sale of a dermatology unit earlier this year. The company has said it aims to complete a review of its ailing European processed-meat brand Herta by the end of the year, and is said to be considering a sale of its two ailing Chinese units Hsu Fu Chi and Yinlu.

The ice cream deal also follows Nestle’s decision to cut some 4,000 jobs linked to the direct delivery system of frozen pizza and ice cream to stores, and instead transition to a warehouse model to lower costs.

Nestle is “convinced that Froneri’s successful business model can be extended to the US market,” Mr Schneider said in a statement, confirming an earlier report.

The venture is gaining market share, Nestle said. The Swiss company sells Haagen-Dazs in the US while General Mills makes it for Europe and other markets.

Unilever’s commitment

Even as Nestle backs away from ice cream, Unilever says it’s sticking to it. The company said in October that growth over the summer was held back by sluggish performance for the category in Europe, after hot weather a year earlier boosted sales.

“Ice cream is absolutely something we are super committed to,” Hanneke Faber, the Anglo-Dutch company’s president of foods and refreshment, said this month in opening a food innovation centre in the Netherlands. – Bloomberg