Nestlé U-turn is refreshing example of M&A candour

CEO Mark Schneider of Nestlé smiles during the launch of the Nestlé R&D Accelerator in Konolfingen, Switzerland, September 28, 2020. REUTERS/Arnd Wiegmann

LONDON, Nov 29 (Reuters Breakingviews) - It’s common for companies to do a bad deal. It’s less common for them to admit as much and reverse tack after just two years. That’s what Nestlé (NESN.S) is potentially doing by deciding to “explore strategic options” for Palforzia, which could mean selling the peanut allergy treatment that it bagged as part of a $2.6 billion acquisition of Aimmune Therapeutics, announced in August 2020. Nestlé originally touted potential annual sales of $1 billion for the drug, which had received U.S. Food and Drug Administration approval. But on Tuesday the Swiss consumer-goods giant said uptake had been slow among patients and doctors.

Nestlé Chief Executive Mark Schneider can arguably afford to be honest, rather than trying to bury the M&A flop within his $330 billion behemoth. That’s because his overall acquisition strategy seems to be working. Nestlé says it has bought companies with a total enterprise value of more than $50 billion since 2017, with 83% by value either achieving or exceeding the company’s acquisition plans. Overall, the group reckons it has generated an 11% to 13% annualised return from these deals. That makes it easier for investors to stomach the occasional misstep, and means that reversing course on Palforzia is far from a nutty idea. (By Karen Kwok)

Follow @Breakingviews on Twitter

(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

Capital Calls - More concise insights on global finance:

Brenntag’s U.S. swoop is both logical and risky read more

Dr. Martens exposes fashion’s squeezed middle read more

A divided Fed hides behind fuzzy language read more

Foxconn is stuck between rock and hard place read more

ABB takes valid detour around hairy IPO markets read more

Editing by Liam Proud and Streisand Neto

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.