World

Toward A Friskier Meow Mix

By CBSNews.com staff CBSNews.com staff

January 16, 2001 / 7:59 AM EST / CBS

Food giant Nestle S.A. said Tuesday it would buy the U.S. pet food company Ralston Purina for $10.3 billion, linking together such brands as Alpo, Purina, Friskies and Meow Mix.

Nestle, based in Vevey, Switzerland, will pay $33.50 per Ralston share, a 36 percent premium over above the St. Louis-based company's Friday closing price.

The deal had been the subject of wide speculation already Monday. CBS MarketWatch reports it more than doubles Nestle's share of the U.S. pet food market, adding the Purina Dog Chow brand to its other well-known offerings such as Alpo and Mighty Dog.

"Both corporations see this major strategic transaction as the ideal way to benefit from their combined know-how, complementary strengths and international presence in the growing pet-care market," the companies said in a statement.

Nationwide, dog-food sales grew by about 4 percent last year, while cat food volume grew by roughly 5 percent.

That's faster than Nestle's traditional food businesses, reports CBS MarketWatch, which is growing only 2-3 percent a year.

The Nestle Group's current pet food business has annual sales of about $3.7 billion. Ralston Purina had sales of more than $2.25 billion in North America last year and international sales of $450 million.

"Nestle expects that Friskies' good market position in Europe and in other countries will allow it to quickly internationalize Ralston Purina's science-based product lines and thus to significantly expand its business in the premium sector and in specialized sales channels," the statement continued.

"Together, Ralston Purina and Nestle will be able to take this pet-care business to levels that would not have been possible as separate entities."

Moreover, reported CBS MarketWatch, Nestle's purchase of Ralston would automatically give it a strong presence in dry pet food - which is considered healthier for pets and a sector that has strong growth prospects.

Nestle moved into pet food in 1985 and has bolstered the business in recent years with acquisitions. It bought Alpo in 1994 and Spillers of the U.K. in 1998, making it one of the biggest operators in the industry.

Nestle said it expected to make annual savings of $260 million by 2003 and said it would make job cuts through normal attrition, reduced hiring and voluntary separation packages.

Ralston markets dry pet food under a number of different names, including Purina, Pro Plan and Meow Mix, and also makes cat and dog litter.

Nestle, the world's largest food company, produces everything from candy bars to Perrier spring water and Nescafe instant coffee.

Nestle has enlarged its pet food business through acquisitions. In 1985, the company purchased Carnation, which owned Frskies, and in 1994 it added the Alpo brand to its holdings. The company picked up one-fifth of Europe's pet-food market in 1998, when it paid more than $1 billion for Britain's Spillers Pet Food, a subsidiary of Dalgety.

According to ABN AMRO, Ralston controls 27 percent of the $4.3 billion dog-food market, while Nestle has 12 percent. In cat food, Ralston has 33 percent of the $2.6 billion market, while Nestle's share is about 13 percent.