Nestle selling Davigel to push higher value growth, says analyst

By Joyeeta Basu

- Last updated on GMT

Nestle has become a huge global player and becoming so large poses its own challenges, said the analyst
Nestle has become a huge global player and becoming so large poses its own challenges, said the analyst

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Nestlé could net up to €300m from the sale of Davigel, as the world’s biggest food company continues to refocus its business activities in to higher value areas, an industry analyst has said.

The global food and drink giant is known to be looking to offload parts of its business that do not fit with new long-term plans. This refocussing on markets where there is growth could be the reason it is now in negotiations to sell its frozen food unit Davigel to UK-based Brakes, Dr Clive Black director of head of research at Shore Capital Markets told FoodNavigator.

Nestle is, like many major global consumer groups, focusing upon a smaller core area of businesses to help drive performance. Markets and businesses that are no longer non-core can act as a drag on management time, performance and returns​,” said Black.

Nestlé has confirmed that it is negotiations to sell its subsidiary to UK foodservice giant Brakes Group, owned by buyout fund Bain Capital. “The transaction is subject to consultations with the relevant works councils and the approval of the competition authorities,” ​it said.

Market reports suggest a price of €200-300m, but this is unconfirmed.

For Brakes, where foodservice in the UK and France is demonstrably core, Davigel, can therefore release more value under its ownership​,” Black suggested.

[But] Nestle has become a huge global player and becoming so large poses its own challenges.” Hence, it is refocusing like many international FMCG groups on markets where there is attractive growth, margins and returns​,” he added.

Selling underperforming brands

The global groceries giant announced two years ago that it would consider selling underperforming businesses​, particularly following struggling trade in European markets.

Sales so far have included its PowerBar and Musashi brands​ to Post Holdings as well as its US frozen pasta business, Joseph’s Pasta last year. The company also sold its Jenny Craig​ weight management businesses in North America and bought Pfizer’s Nutrition​, further demonstrating its agenda to refocus its business activities.     

“Nestle is of such a size that there is bound to be further finessing of its portfolio, as is the case with other companies such as Danone, Proctor & Gamble and Unilever​,” said Black.

Nestle and expansion

Nestle had struggled in the UK over the past year, although water brands were top performers and coffee, pizza and noodles boosted overall European sales, the company claimed.

The company had reported total full-year 2014 sales of 91.6bn Swiss Francs (€88.71bn), reflecting 4.5% organic growth and 2.3% internal growth.

The company is expected to announce its three-month sales on Friday.

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