Nestle may buy Russian babyfood firm Progress: sources

MOSCOW/ZURICH (Reuters) - Nestle (NESN.VX), the world's biggest food group, is in talks to buy Progress, a Russian juices and babyfood producer, to increase its exposure to one of the biggest babyfood markets in the world, two industry sources told Reuters on Friday.

Nestle's Russian office spokesman declined to comment.

Russian business daily Kommersant reported about the possible deal. "According to the information we have, the deal may be announced in the next two weeks," a manager of a large food distributor was quoted as saying by the paper.

He also said Nestle had outbid contenders including U.S. food company Heinz (HNZ.N) and French group Danone (DANO.PA).

"The Progress acquisition would allow Nestle to secure the number one position among global companies in the Russian baby food market," Vontobel analyst Jean-Philippe Bertschy said in a note, adding Russia was the fourth-biggest babyfood market worldwide in terms of volume and the sixth in terms of value.

He said the acquisition would make sense and fit in with Nestle's goal of generating 45 percent of sales in emerging markets by 2020. "It would be a small add-on, 0.2 percent of group sales and less than 3 percent of nutrition sales."

Nestle has been an active player in recent emerging markets M&A activity, taking stakes in two Chinese food companies.

A banking source told Reuters last month Nestle and Danone were early front runners working on bids for Pfizer's Wyeth baby formula business, worth up to $10 billion.

Vontobel's Bertschy said a possible Progress deal would have no impact at all on Nestle's possible interest in Wyeth.

Nestle is the global leader in the baby milk formula market with a market share of just under 20 percent, followed by Mead Johnson (MJN.N) and Danone.

Nestle has plenty of dry powder for acquisitions after selling its remaining stake in eyecare group Alcon to Novartis (NOVN.VX) and has so far refrained from announcing a new share buyback program, fuelling speculation it might spend more on acquisitions.

Nestle shares were up 0.4 percent at 0926 GMT, outperforming a 0.2 percent rise in the STOXX Europe 600 food and beverage index .SX3P.

($1 = 0.870 Swiss franc)

(Reporting by Silke Koltrowitz in Zurich, Maria Plis and Nastassia Astrasheuskaya in Moscow; Editing by Dan Lalor and Hans-Juergen Peters)