VEVEY, Switzerland - Nestle SA agreed yesterday to buy Ralston Purina Co. for $11.2 billion in cash and debt, becoming the world's biggest pet-food maker by adding Purina Dog Chow and Meow Mix to its Alpo and Friskies brands.
Nestle will pay $33.50 a share, 36 percent more than Ralston's $24.63 closing price Friday, and will assume about $1.2 billion of Ralston's debt. The Swiss company expects to recoup about $900 million by selling Ralston's stakes in several companies, including DuPont Co.
Nestle Chief Executive Officer Peter Brabeck held off making acquisitions last year as European and U.S. rivals spent more than $140 billion buying companies such as Nabisco Holdings Corp. Ralston will be Brabeck's biggest purchase since he took the helm in June 1997 and will give him the largest pet-food maker in the United States, where sales are rising at twice the rate of food for humans.
"They were patient and made exactly the right move," said Joerg Lorenz, who manages almost 3.5 billion Swiss francs ($2.1 billion) at Swissca Portfolio Management in Zurich, including Nestle shares.
Shares in Nestle, which is also the world's biggest food company, rose 24 Swiss francs to 3,495 francs. The company's products include Nescafe coffee and Perrier sparkling water. The share price of St. Louis-based Ralston rose $6.88, or 28 percent, to $31.50. The stock had risen about 40 percent since the end of April.
The acquisition will hurt per-share profit the first three years after it closes as Nestle amortizes goodwill, Brabeck said. About $10 billion in goodwill and intangibles will be amortized over 20 years, Nestle said.
The purchase will be financed through existing cash and a bank loan, Chief Financial Officer Mario Corti said during a conference call. Nestle plans to sell Ralston's stakes in DuPont, Conoco Inc. and Interstate Bakeries Corp.
The takeover, expected to be completed by the end of the year, will result in annual cost savings of $260 million by 2003, Nestle said. Brabeck said job losses would be limited to attrition, voluntary retirement or reduced hiring.
Ralston will boost Nestle's share of the $25 billion global pet-food market to 30 percent from 18 percent, surpassing No. 1 Mars Inc.'s 23 percent, said Deutsche Banc Alex. Brown analyst Eric Katzman. Closely held Mars makes Pedigree and Whiskas.
Nestle's share of the U.S. dog food market will reach 40 percent and its share of cat food sales will be 45 percent.
Nestle doesn't foresee obstacles to closing the deal, which is subject to regulatory and Ralston shareholder approval, Corti said.