Nestle SA Reg Shs. Ser. B Spons (ADR)(OTCMKTS:NSRGY) confirmed that it is in advanced talks to merge its international ice-cream operations with R&R Ice Cream. This will help the company to focus on other leading brands. Nestle’s ice cream segment includes over 150 brands including Nestle Scholler, Extreme and Movenpick. Its ice-cream businesses in the U.S., which cover Dreyer’s, Haagen-Dazs and Edy’s, will not form a part of the deal.
Nestle confirmed the merger talks after Reuters reported that R&R Ice Cream, maker of Rowntree’s Fruit Pastille lollies, Kelly’s Cornish ice cream and Cadbury Flake Cones,, was in discussions with Nestle to create a joint venture in a $3.4 billion deal. Nestle stated that it will contribute its ice-cream operations in Brazil, Argentina, Europe, Egypt and the Philippines, along with its European frozen food operations, excluding pizza. All of UK-based R&R Ice Cream, owned by PAI, will form a part of the joint venture.
Nestle’s ice cream operations always reported weaker returns compared to its other business segments. In fact, the global ice cream market is under pressure as consumer preferences shifts toward more of healthy, premium and fresh food brands. The company’s share of the worldwide market, valued at $67 billion, is 10.8%, down from 12.8% in year 2010. R&R market share stands at 0.8%.
Nestle manages an extensive portfolio including Nescafe coffee, KitKat bars, Purina pet food and Gerber baby food. This diversification has been a blessing in times of global economic downturn. Still, the company has been reviewing its product portfolio, removing underperforming brands and shifting its focus on markets performing well.
In last couple of years, the company has shun most of its Power Bar snacks, Jenny Craig diet food business and Juicy Juice drink in the United States, its ice cream ops in South Africa and frozen food operations in Spain. The experts believe that Nestle can follow same things with its frozen food operations in the U.S.
Nestle SA Reg Shs. Ser. B Spons (ADR) (OTCMKTS:NSRGY) continued its short term rally to end the first trading session of the week with a gain of 1%. The volume of the day at 335,000 remained lower than the daily average of 507,000. Now the stock faces a stiff challenge in the short term as it has reached the intermediate swing high and supply area around $77. Only a firm break and weekly closing above $77 can push it much higher to the long term resistance area around $80. The long term structure of the stock remains firmly bullish but short term corrections can’t be ruled out.