NSRGY Nestle SA (PK)

By Ben Dummett, Dana Mattioli and Dana Cimilluca 

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 (July 3, 2018).

Nestlé SA is angling to take control of Canada's Champion Petfoods for more than $2 billion, according to people familiar with the matter, as the consumer-goods giant seeks out higher-growth businesses to help offset its struggling packaged-foods operations.

Nestlé is in talks to acquire a majority stake in the closely held maker of specialty cat and dog food, whose owners include Toronto buyout firm Bedford Capital. The talks, however, could still break down before a deal is completed.

The interest in Champion comes about a year after Nestlé first disclosed a far-reaching plan to revive its stock price by investing in areas such as pet care, bottled water and coffee amid pressure from U.S. activist investor Daniel Loeb. Since then, the company has made several deals, including its $7 billion acquisition of the rights to sell Starbucks Corp.'s coffee and tea in grocery and retail stores.

Still, Mr. Loeb remains dissatisfied with these efforts. On Sunday he made public a letter to Nestlé Chief Executive Mark Schneider and the board, criticizing the company for not selling underperforming and nonstrategic businesses fast enough and described the company's strategic approach as "muddled."

Switzerland-based Nestlé is already established in the pet-food market through its well-known Purina brand, and in April it acquired a majority stake in Tails.com, a direct-to-consumer dog nutrition business in the U.K. for an undisclosed amount.

Nestlé's pet-care operation generated organic sales growth of 3% last year, second only the coffee division's growth on an organic sales basis, which excludes such factors as foreign-exchange fluctuations. By comparison, the company's confectionery and prepared dishes and cooking aids businesses grew by 0.3% and 2.2% respectively.

The acquisition of Champion could help Nestlé sustain the momentum of its pet-food operation, while providing the Edmonton, Alberta-based company with a broader customer base.

Champion, as a closely held company, doesn't disclose financial information. But it and other natural pet-food makers are growing faster than their more traditional rivals as health-conscious consumers increasingly do for their pets what they have done for themselves by favoring natural food and high-end treats -- a trend that has had many packaged-foods companies playing catch up.

Champion sells its dog and cat food under the Orijen, and Acana brands, listing fresh meat, free-run poultry and wild-caught fish among the ingredients it uses. The company sells its products in more than 80 countries through a network of pet food distributors and veterinarian practices, as well as in-store and online, according to its website.

Nestlé isn't the only packaged-foods company betting on the acquisition of higher-end pet-care businesses to reinvigorate growth. In February, General Mills Inc. agreed to buy natural pet-food maker Blue Buffalo Pet Products Inc. for about $8 billion to help offset slumping sales of its yogurt and cereal brands.

And last month, Mars Inc., best known for its candy bar and gum brands, acquired European veterinary operator AniCura Holding AB from European buyout firm Nordic Capital for about EUR2 billion ($2.32 billion), the latest in a series of deals in the pet-care sector for the privately held company. Mars is also a major pet-food provider with brands such as Iams, Pedigree and Royal Canin.

Write to Ben Dummett at ben.dummett@wsj.com, Dana Mattioli at dana.mattioli@wsj.com and Dana Cimilluca at dana.cimilluca@wsj.com

(END) Dow Jones Newswires

July 03, 2018 02:47 ET (06:47 GMT)

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