Nestle eyes big takeovers in health food push

ZURICH Mon Apr 7, 2008 8:43am EDT

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ZURICH (Reuters) - Nestle (NESN.VX) stands poised for large acquisitions to strengthen its strategic drive into nutrition and health foods after agreeing to sell its stake in U.S. eyecare firm Alcon ACL.N for up to $39 billion.

Nestle said on Monday it was now open to making large acquisitions -- above its previous, self-imposed ceiling of around $2 billion annually -- using the proceeds from the sale of Alcon to drug firm Novartis (NOVN.VX).

"If we believe an acquisition is strategically necessary, we will make it. If that should be a company that costs considerably more than we spend year in and year out for acquisitions here and there, clearly we do have the financial punch to make acquisitions," said Nestle spokesman Francois-Xavier Perroud.

French cosmetics giant L'Oreal (OREP.PA) was at the top of Nestle's possible takeover list, a trader said.

Nestle and the Bettencourt family both hold around 30 percent in L'Oreal but neither is allowed to sell their stakes under an agreement that expires in April 2009.

On Monday, Novartis announced an agreement to buy Nestle's 77 percent stake in U.S. company Alcon for $39 billion. Novartis will acquire a first, 25 percent stake in Alcon for $11 billion and is set to buy Nestle's remaining 52 percent for a fixed price of $28 billion.

DRAMATIC TRANSITION

Nestle has undergone a dramatic transition in the past five years from a massive processor of basic foods like milk powder and corn flakes to a high-tech maker of sports foods, healthy foods and medical nutrition.

Profits have soared as a result, as Nestle had anticipated not only widespread shifts in social attitudes favoring healthy lifestyles, but also soaring prices for basic inputs like flour and cocoa that have pressured profitability at rivals.

Analysts have long urged Nestle to bulk up or break up its shareholdings that include Alcon and L'Oreal. But while Alcon was clearly a financial investment, Nestle claims that its 29 percent stake in L'Oreal makes strategic sense.

"It looks like Nestle is cashing in so that it can build up its stake in cosmetic group L'Loreal once the shareholder deal with the French runs out," said a Zurich trader. "L'Oreal doesn't mean nutrition but it does indeed mean wellness."

A Nestle spokesman said the world's largest food company was prepared to exceed the roughly $2 billion annual budget for niche acquisitions if needed.

"If Nestle believes an acquisition is strategically important, it will go way beyond that," he said. The main thing is that the target fit its strategic push into nutrition, healthy foods and wellness.

"We are a pragmatic company," he said. "If there is an opportunity we will take it."

(Additional reporting by Rupert Pretterklieber and Sam Cage; Editing by Erica Billingham, Paul Bolding)

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