N ... e ... s ... t ... l ... e ... s, Nestl'e made the very best -- offer for Carnation
Vevey, Switzerland — Friskie dog food, Fancy Feast cat food, Coffee-mate nondairy creamer, Que Bueno! taco sauce, Instant Breakfast, Carnation evaporated milk, Stouffer's vegetable lasagna, Taster's Choice, Nesquik, Libby's Apple C, Crosse & Blackwell. . . . All these and literally hundreds more are -- or soon will be -- tradenames for food products produced by Nestl'e S.A., based in this town of 15,000 people some 12 miles from Lausanne, Switzerland.
Nestl'e is already the world's largest food company and Switzerland's largest firm of any kind. Sales, not officially announced yet, were around $11.3 billion last year. Soon Nestl'e will be even bigger when it legally takes over Carnation Company, with sales of more than $3.5 billion. (Nestl'e's tender offer for Carnation shares expires next Monday.)
That purchase prompts another superlative -- the largest nonoil corporate merger in history. The Federal Trade Commission gave Nestl'e unrestricted approval for the nearly $3 billion deal late Jan. 4. Somehow that news slipped past much of the American press unnoticed. Business reporters apparently were absorbed in the $3.25 billion bid of Occidental Petroleum for Diamond Shamrock Corp., an offer that was later rejected.
But the news got plenty of attention in the Swiss press -- and here in the glass and steel headquarters building of Nestl'e. Helmut Maucher, Nestl'e's managing director, and Carl L. Angst, a general manager, were soon on the way from their office building on the shore of Lake Geneva to the Los Angeles head office of Carnation.
Nestl'e has long had an eye on expanding its holdings in the United States. ``It is attractive because [the US] is the ultimate of free enterprise systems,'' said Mr. Angst in a recent interview here. ``A minimum of controls. No price controls. It's the mentality of the Americans. It's their ideology, their belief in free enterprise.''
Nestl'e's last annual report lists operating companies with 1983 sales in 68 nations. In one sense it may be the most multinational of all multinationals since only 3 percent of its sales take place in its homeland.
There are investment opportunities in other countries, Angst notes. ``But if you take everything together, America is still on everybody's acquisition list. The US is in the No. 1 position . . . even if it's relatively expensive.''
Angst maintains the Carnation acquisition, which will almost double Nestl'e's sales of $2.5 billion in the United States, will largely accomplish the food company's desired expansion goal for the US. ``We are not shopping anymore. That does not mean we will reject any opportunities which might come our way.''
The stronger base that Nestl'e will get in a stable industrial country like the US ``permits us to launch more initiatives in [riskier] developing countries,'' he figures.
In its search for a US acquisition, Nestl'e had not been actively considering Carnation, though it had looked at it several years earlier. ``It was brought to our attention that Carnation might be available -- just like that,'' Angst recalls. After some study, Nestl'e decided Carnation would ``fit,'' as Angst put it, and a deal was announced late last summer.
Carnation, which was founded in 1899, was run by family members until 1983, and a family trust still holds some 32 percent of the shares of the company. More than 90 percent of Carnation's 34.80 million shares outstanding, including those of the family trust, have already been tendered at $83 a share to Nestl'e Holdings, a wholly-owned unit of the Swiss company. That tender offer expires Jan. 21. Checks began going out to Carnation shareholders last Monday, says Nestl'e.
The Federal Trade Commission held up the deal for several months while looking for antitrust problems, especially looking for a market overlap in the case of some frozen french fries produced by Carnation. But Carnation's fries are sold to the catering business, not through retail stores. The FTC also examined an overlap in chocolate powders for drinks, but apparently accepted Nestl'e's view that this was immaterial because entry into that business is relatively easy from a technological standpoint. The FTC did not oblige Nestl'e to dispose of any part of Carnation, which employs 22,000 people in more than 100 production centers in 18 countries.
Angst says his company intends to let Carnation be run by its management as a separate operation.
``Keeping it separate does not mean we cannot help,'' he went on. ``We have quite extensive research, and some of our research will be applicable to Carnation product lines.'' Indeed, many of the 1,500 employees at Nestl'e's headquarters are involved in sharing technology with its operations around the world.
With the strength of the US dollar, the purchase of Carnation's share would appear expensive in Swiss-franc terms. ``The Swiss citizen is probably tearing his hair and wondering,'' says Angst. However, he maintains that the exchange rate is not so relevant as the interest rate on dollars borrowed to make the purchase.
``There's no question that the finance charges of these acquisitions are heavy,'' he admits. ``But . . . there will be still a plus effect on our total profits.''
Profits from US operations will remain high in Swiss-franc terms if the dollar remains high, he notes. Further, he figures Nestl'e's profits per share will rise. And Nestl'e does not intend to change its dividend policy. However, profits as a percentage of sales are likely to fall.
Most of those shareholders are Swiss. Some 25 years ago, many US multinationals were on acquisition sprees in Europe. Nestl'e found that a number of its ``bearer'' shares (shares not registered in anyone's name) were being bought by American firms. Fearing for its independence, Nestl'e issued a large number of registered shares, which must be held by Swiss citizens. Today, some 64 percent of the company's shares are Swiss-owned.
Nestl'e won some unwanted attention for several years when it was boycotted by groups objecting to its sales campaign for baby formula in developing countries. The ``activists'' held that it would be better for babies if mothers breast-fed them. Many poor mothers used impure water or diluted the formula, harming their children.
Last year Nestl'e signed an agreement with the activists limiting gifts of free formula to maternity hospitals to mothers unable to breast-feed.
Many other companies making formula have not signed such a code. Already, Angst says, Nestl'e has lost market share for infant formula in some countries. ``I hope . . . the whole infant formula industry will fall in line, adopt a code,'' he says.