Nestlé said to be among potential Hain Celestial suitors

The company has held preliminary talks about purchasing all or parts of Hain Celestial

by BLOOMBERG

NEW YORKNestlé SA is among companies exploring a purchase of Hain Celestial Group Inc, a US maker of organic and vegetarian food, according to people familiar with the matter, as the Swiss giant seeks to expand into healthier fare.

The Vevey, Switzerland-based company has held preliminary talks about purchasing all or parts of Hain Celestial, said the people, who asked not to be identified because the details aren’t public. Other companies, including US food makers and buyout firms, are also interested in Hain Celestial, the people said. No decisions have been made and Hain Celestial may decide against a sale, the people said.

Shares of Hain Celestial rose as much as 11% on Monday after they were temporarily halted in New York. The shares closed up 2.6% to US$40.89 (RM169.28), valuing the company at more than US$4.2 billion.

Nestlé would benefit from Hain’s US distribution network, but an acquisition would be expensive at current valuations, MainFirst analyst Alain Oberhuber said in a note.

“While an outcome to a deal is currently uncertain, overall we do not find Hain Celestial attractive at current multiples, and there would need to be significant sales and cost synergies to justify such a deal,” he said.

Consumer Tastes

Like many food companies, Hain Celestial and Nestlé have been whipsawed by changing consumer tastes. The US company’s profit has shrunk from a peak of US$180 million in 2015. It had adjusted net income of US$102.5 million on revenue of US$2.9 billion for the year ended June 30, according to data compiled by Bloomberg.

The company, which supplies natural and organic food to Amazon.com Inc’s Whole Foods Market and other grocers, reported financial results in June for the first time in more than a year after completing an internal accounting probe. The company said in August 2016 that it was delaying the release of its financial results and examining its accounting practices. The company said later it didn’t need to restate any of its results.

Activist investor Engaged Capital, founded by Glenn Welling, disclosed a 9.9% stake in Hain Celestial in June and began pressing for changes, including a possible sale. Engaged Capital believes the company could fetch US$46 to US$73 a share in a sale based on recent acquisitions in the food industry, a person familiar with the matter said in June.

Cost Cutting

Nestlé’s sales fell to US$91 billion in 2016 from a peak of more than US$100 billion in 2014, according to data compiled by Bloomberg.

The company, which is cutting jobs at its skin-health unit and shifting headquarters in the US and France, may spend close to one billion Swiss francs (RM4.14 billion) on a business reorganisation this year, CFO Francois-Xavier Roger said on a call with reporters in October.

Nestlé CEO Mark Schneider, who took the helm at the owner of Nespresso coffee and Perrier bottled water this year, is also under pressure from an activist investor. Since Dan Loeb disclosed a stake in the company in June, Schneider has stepped up efforts to bulk up in niche markets like organic food and hipster coffee as Nestlé foresees the slowest sales growth in at least two decades this year.

The acquisitions are part of a trend by big food and beverage companies to buy up smaller players to capture their rapid growth in premium segments. Nestlé faces pressure as its leading position in the market for global packaged coffee has been challenged by JAB Holding Co. JAB has spent more than US$30 billion expanding its empire with brewers such as Keurig Green Mountain and Peet’s.

In recent months, Nestlé has snapped up vegetarian burrito maker Sweet Earth Inc and drip-coffee specialist Blue Bottle Coffee Inc and invested in Freshly Inc, a US meal preparation company. Nestlé is also seeking a buyer for its US confectionery business as consumers cut back on sugary snacks. — Bloomberg