Nestle to Buy Ralston Purina for $10.3 Billion
Combined Company Will Have 39 Percent of Dog-Food Market
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By Marcel Michelson
Reuters

ZURICH, Switzerland (Jan. 16) - Swiss foods group Nestle SA on Tuesday
agreed
to buy Ralston Purina Co. in a $10.3 billion deal, turning one of its
fastest
growing business areas into the world's largest pet-food company.

Nestle is offering $33.50 in cash per share for the outstanding shares in
Ralston, a 36 percent premium to the closing price for Ralston on Friday,
January 12 and valuing the U.S. firm's total equity at $10 billion.

Nestle will also assume $1.2 billion in debt but will gain $0.9 billion from
Ralston's financial investments.

The Swiss company, whose existing brands in the over $33 billion a year
pet-food market include Friskies cat food and Mighty Dog, has seen the
business become one of its fastest growing areas since its entry into the
market in 1985.

The merged Nestle Purina Pet Care's pet-food sales will reach $6.3 billion,
putting it ahead of the previous market leader, privately held Mars Inc.,
which had sales last year of $5.85 billion. Among Nestle's businesses only
chocolate is a larger market, at some $40 billion.

"It's a really good thing for Nestle. Ralston is second worldwide in pet
food
sales, behind Mars," said analyst Amanda Hopkins at fund managers Union
Bancaire Privee in Geneva. "Pet-food sales are growing by about 6.5 per cent
annually, about double that for human food."

TOP PRICE

Nestle shares were 1.6 percent higher at 3,528 Swiss francs at 1212 GMT. The
share has outperformed the SMI blue-chip index by 7.50 percent in the past
year.

Ralston's businesses are mainly in the U.S. where it has 27 percent of the
dog food market and a third of the cat food market. Nestle will be able to
leverage Ralston's brands through it worldwide distribution system.

With its Purina Dog Chow brand, Ralston had North American sales of more
than
$2.25 billion in 2000 and international sales -- in Latin America and Europe
-- of some $450 million.

At 18.6 times earnings before interest and taxes, analysts described the
price as quite high but also said Nestle will be able to absorb it as
Ralston
has a high earnings before interest and taxes (EBIT) margin of 21 percent.

"They are acquiring a market leader with good margins and growth potential,"
said Rene Weber, analyst at investment bank and fund managers Vontobel.

People familiar with the deal said Nestle will use around $7.0 billion of
debt to pay for Ralston with the rest coming from its own resources.

Nestle had 8.7 billion Swiss francs ($5.3 billion) in cash and other liquid
assets at the end of June, and generated operating cash flow of 3.2 billion
in the first half of 2000.

Nestle's Chief Financial Officer Mario Corti said the cost of capital used
for the deal would be less than six percent. It would be earnings neutral
for
Nestle immediately after the deal, but will grow two percent at the end of
first year and up to three percent thereafter.

NO NEED FOR FRESH EQUITY

Corti said Nestle will not issue fresh equity but would sell Ralston's
stakes
in DuPont, Conoco and Interstate Bakeries, aggregating $900 million. It
could
also sell its so-called Treasury stock -- Nestle shares the company owns
itself.

Nestle will incur restructuring costs of $250 million over two years but
that
will be offset by annual synergies of $260 million after three years.

Much of the synergies will come by consolidating supply chains and dry pet
food factories in the U.S. where there will also be some job cuts.

The U.S. Friskies business will be merged with Ralston Purina into Nestle
Purina Pet Care, based in Saint Louis and headed by Patrick McGinnis of
Ralston Purina. Elsewhere the activities will be integrated into Nestle's
businesses.

Conti said he expected a full review by regulatory authorities and said
Nestle would work closely with them.

"We are really optimistic and confident that we will be able to reach
approvals here that serve the business well," he said.

Dresdner Wasserstein Perella acted as financial advisor to Ralston Purina
while Nestle was advised by Credit Suisse First Boston and Greenhill & Co.


~**~**~**~**~**~**~**~**~**~**~**~**~**
Cindy Curtis, RN, IBCLC
mailto:[log in to unmask]
http://www.breastfeedingonline.com

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