NSRGY Nestle SA (PK)

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 17, 2018).

By Eric Sylvers, Saabira Chaudhuri and Annie Gasparro 

How do you say "Butterfinger" in Italian? Americans may soon find out.

Italian candy maker Ferrero International SA muscled further into the North America market, agreeing to pay $2.8 billion in cash to buy Nestlé SA's U.S. chocolate business that includes the Butterfinger and Baby Ruth brands.

Ferrero beat out Hershey Co. as Nestlé, based in Switzerland, carried out a monthslong sales process that also drew interest from several private-equity firms.

Adding the Nestlé business, which had about $900 million in sales in 2016, will make family-owned Ferrero the third-biggest chocolate seller in the U.S. It is Ferrero's third sweets acquisition in the country in less than a year, as the Italian maker of Ferrero Rocher chocolates and Nutella spread bets billions of dollars on an industry that many companies are turning away from after a slowdown.

Candy is struggling to compete with healthier snacks such as nuts and granola bars, losing shopper dollars and shelf space. While Hershey bid against Ferrero for the Nestlé assets, the U.S. company is also diversifying beyond sweets -- as is its biggest domestic competitor, Mars Inc.

Last year, M&M's maker Mars, the world's largest pet-food manufacturer, purchased a veterinary clinic and dog day-care operator VCA Inc. for $7.7 billion. It also bought a minority stake in KIND LLC, which makes fruit-and-nut bars. Hershey said last month it would buy SkinnyPop popcorn owner Amplify Snack Brands Inc. in its largest deal to date, valued at $1.6 billion.

But industry analysts say Americans' sweet tooth can still generate growth for confectioneries that invest in innovation and marketing. That is what Ferrero will be counting on. The company has a strong record of innovating and recently released Tic Tac gum, a twist on a mint that has been around for decades.

Ferrero, founded in the small northern Italian town of Alba, is already the world's No. 4 confectionery by market share and had about $12 billion in revenue in 2016.

The acquisition follows Ferrero's purchase last year of Lemonheads maker Ferrara Candy Co. for about $1.3 billion, and the much smaller Fannie May Confections for $115 million. Ferrero's new strategy of pursuing acquisition-led growth, especially in the U.S., has been led by Executive Chairman Giovanni Ferrero, the founder's grandson who in 2011 took sole charge of the company.

In addition to the acquisitions, Mr. Ferrero has sought to promote organic growth with new products, including the recently introduced cookie version of its Kinder Surprise egg that is sold in Europe but not in the U.S.

Vevey-based Nestlé, which has long tried to position itself as a health-food company, has faced criticism from investors lately for lack of focus, with a brand portfolio that includes products as diverse as vitamins, bottled water, pizza and ice cream.

Nestlé, which gets only about 3% of its U.S. sales from sweets, insists it is committed to confectionery outside the U.S., although the business isn't among Chief Executive Mark Schneider's top priorities. Globally, more than 80% of Nestlé's confectionery business is made up of local brands, a model that differs from many of Nestlé's other big businesses. Nestlé has been launching more high-end chocolate, hoping to chase sales growth as overall chocolate volumes decline. Performance so far has remained sluggish.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and Annie Gasparro at annie.gasparro@wsj.com

(END) Dow Jones Newswires

January 17, 2018 02:47 ET (07:47 GMT)

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