Coverage: Nestle to sell U.S. candy business to Ferrero

Swiss food company Nestle has agreed to sell its U.S. confectionery business to Italy’s Ferrero for $2.8 billion, marking CEO Mark Schneider’s first big sale and a small step on its path toward healthier products.

Martine Geller and Francesca Landini of Reuters had the news:

Nestle, the world’s biggest packaged-food company, has cited the unit’s weak position in the United States, where it trails Hershey, Mars Inc and Lindt, as the rationale for a sale.

For family-owned Ferrero, the cash deal offers a chance for the Italian company to build scale quickly in that key market, where it has done two other deals in the past year.

The maker of Nutella spread and Ferrero Rocher pralines will become the third-largest chocolate company in the U.S. and globally, according to Euromonitor International.

For Nestle, which first sold milk chocolate in the 1880s, a consumer shift away from junk and sugary foods has led the Swiss company to focus on “nutrition, health and wellness,” although it says it is committed to its non-U.S. confectionery business.

Zlati Meyer of USA Today reported that the deal includes Butterfinger and Baby Ruth:

Nestle’s American sweet treats include Nestle Crunch, Butterfinger, Baby Ruth, Raisinets, Nips, Skinny Cow and Laffy Taffy.

Nestle’s 2016 U.S. confectionery sales were about $900 million and represent about 3% of U.S. Nestle Group’s sales, according to the Swiss company.

“This move allows Nestle to invest and innovate across a range of categories where we see strong future growth and hold leadership positions, such as pet care, bottled water, coffee, frozen meals and infant nutrition,” CEO Mark Schneider said in a statement.

Nestle is the world’s largest food company, according to the 2017 Forbes Global 2000.

Ferrero, which today is headquartered in Luxembourg, is best known for its Ferrero Rocher chocolates, but the company also owns favorites Nutella and Tic Tacs.

Corinne Gretler of Bloomberg News reported that the U.S. chocolate industry is in an upheaval:

The U.S. chocolate industry is in tumult. Hershey Co. has been cutting 15 percent of its workforce and Lindt & Spruengli AG on Tuesday reported its weakest organic sales growth since 2009 amid sluggish demand in North America.

The Nestle unit, which also includes brands like Oh Henry!, Laffy Taffy and Nerds, is suffering a decline in revenue and had sales of about $900 million in 2016. Nestle said in a statement announcing the sale that it remains “fully committed” to its chocolate business around the world. That includes KitKat, which it produces globally except for the U.S., where Hershey Co. owns the rights.

Closely held Ferrero has been pushing harder into the U.S. Last year it snapped up Ferrara Candy Co., the maker of Red Hots and Lemonhead candies, as well as confectioner Fannie May.