Dive Brief:
- In its long-awaited exit out of the category, Nestle agreed to sell its U.S. confectionary business to Ferrero Group for $2.8 billion, according to a press release. The Italian company is known for Tic Tac breath mints, Ferrero Rocher pralines and Nutella hazelnut spread.
- Ferrero will acquire more than 20 American candy brands including Butterfinger, Baby Ruth, 100 Grand, Raisinets, Wonka, the exclusive right to the Crunch brand for confectionary, as well as SweeTarts, LaffyTaffy, and Nerds.
- The deal is Ferrero's third acquisition of a U.S.-based candy company in the last year. The purchase will make Ferrero the third-largest confectionary company in the U.S., and will enable Nestle to invest in other faster-growing categories.
Dive Insight:
For years, Ferrero was best known for it gold foil-wrapped Ferrero Rocher candies and popular Nutella spread. The purchase of Nestle's U.S. candy business, which is expected to close by the end of March, instantly adds a roster of well-known brands to the fold, and places Ferrero as the third-largest confectionary company in the U.S.
By acquiring Nestle's U.S. candy business, Ferrero can likely reduce its production, distribution and ingredient costs, saving the company money. It also places the candy maker in a better position to compete in the snacking market for sweets, which remains strong even as more consumers turn to better-for-you products. Most of the brands Nestle is selling are iconic candies popular with consumers, so Ferrero will not have to introduce them to U.S. consumers.
“We are very excited about the acquisition of Nestle’s U.S. confectionary business, which has an outstanding portfolio of iconic brands with rich histories and tremendous awareness," Giovanni Ferrero, executive chairman of the Ferrero Group, said in a statement. "We look forward to welcoming the talented team from Nestle to Ferrero and to continuing to invest in and grow all of our products and brands in this key strategic and attractive market.”
Ferrero, a family-owned chocolate company based in Italy, had not been very active in the M&A space until it acquired Fannie May and Ferrara, the maker of Now and Later, Brach's and Red Hots, last year.
Ferrero is building its U.S. presence at the same time that the big companies are diversifying beyond the candies that made them famous. Mars, the maker of Snickers and M&Ms, acquired a minority stake investment in Kind. And last December, Hershey announced it would acquire Amplify Snack Brands, parent company of SkinnyPop, for $1.6 billion.
It's unclear how Ferrero will take the Nestle U.S. brands it is buying and do more than what the deep-pocketed Nestle was doing already. Nestle was looking to exit the business domestically because it was a distant player behind Mars and Hershey, and the Swiss-based company wanted to focus more of its attention on faster-growing businesses. The brands Ferrero are acquiring are healthy, money-making operations — Nestle’s U.S. confectionary business generated sales of approximately $900 million in 2016 — that should serve Ferrero well.
Once the deal closes, Ferrero could consider developing new product varieties based on existing brands, similar to what Mondelez has done with Oreo or Hostess Brands with Twinkies. In addition, it may look to interesting mashups of its existing products with some of the new ones it is buying, like a Butterfinger-flavored Ferrero Rocher.