Nestlé's cold cuts business could attract interest from Smithfield, Tyson Foods
- Nestlé's sale of its Herta Charcuterie lunch-meat business in Europe could attract interest from companies such as Smithfield Foods, Tyson Foods and Cargill, sources told Bloomberg. The company is planning to send sales information this month to potential buyers.
- The sale of the unit could be valued anywhere from $800 million to $1 billion, sources close to the deal told Bloomberg.
- The potential sale of the cold cuts business was announced by Nestlé in February in response to a shift by consumers toward more plant-based alternatives as well as internal pressure from activist shareholder Daniel Loeb to boost returns.
Nestlé announced two years ago that it was aiming to remake 10% of its portfolio, and this latest move is further evidence that it’s well on its way. Within the last few years, the Swiss company shed its U.S. candy business to Ferrero Group for $2.8 billion and increased its investment in coffee and pet food — two high-growth segments in today's market .
The company's recent activity has been focused on boosting its bottom line so it makes sense that Nestlé is making moves to unload Herta.
Ioannis Pontikis, an analyst with Morningstar, recently told Food Dive that Nestlé's "unique market positions in high-growth categories" such as plant-based creamers, e-commerce health supplements and premium ice cream have been "the main driver of growth outperformance for Nestlé versus many of its U.S.-based peers." Additionally, the company's divestiture of some low-growth segments have better positioned the company for the future.
Now, Nestlé is looking to shed its European lunch meat brand as it renovates its portfolio of legacy products and dives deeper into plant-based, better-for-you options that the market is demanding. In its last earnings report, the company said the decision to sell Herta "underscores Nestlé's increased focus" on that growing sector.
Still, it's not like Nestlé is unloading a dying brand, and the cold cuts segment itself is growing. Herta earned about $681 million in sales in 2018, according to Bloomberg. With a sale valued at nearly $1 billion, that money could be used to invest in popular or up-and-coming brands in the coffee, frozen or pet food space.
Several U.S. brands could reportedly be interested in purchasing the cold cuts unit. It is not surprising that Smithfield, the world’s biggest hog producer, showed interest. Not only do they focus on pork, which is a large portion of Herta’s products, but the company is owned by WH Group. The Chinese business is based in a country where demand for animal protein is growing exponentially in contrast with the U.S.
Tyson also could have interest in acquiring the brand. The company’s chicken sales have been hurting as consumers turn toward beef and pork. At the same time, trade wars have resulted in a glut of hogs and cattle, lowering prices due to the oversupply. To reduce its dependence on volatility in the commodity market, the company bought AdvancePierre in a $4.2-billion deal that enhanced Tyson’s goal of expanding into branded and prepared foods.
Tyson already has brands like Hillshire Farm, Jimmy Dean and Ball Park so adding Herta would be a logical extension while increasing its overseas presence that has been a focus for the company. If Tyson purchases Herta, it also will have access to the lucrative European market that seems to still be interested in classic cold cuts.
It's important to note that talks are early and there’s no guarantee they will lead to a transaction. Even if the sale is completed soon, it may be to an entity that isn’t yet on the radar or a private equity firm. With a lot of potential buyers, that could bode well for Nestlé's efforts to sell the brand.