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To Seal the Deal, Nestle May Sell Another Brand

Sources say the FTC is seeking additional divestitures before it reconsiders the food giant's $2.8-billion takeover of Dreyer's.

March 07, 2003|From Times Staff and Wire Reports

European food giant Nestle has been asked by U.S. antitrust authorities to sell another gourmet ice cream brand and some additional retail delivery systems before completing its takeover of Dreyer's Grand Ice Cream Inc., people familiar with the discussions said Thursday.

Nestle on Tuesday agreed to sell three of Dreyer's super-premium ice cream brands -- Dreamery, Godiva and Whole Fruit -- and distribution networks in seven states to CoolBrands International Inc. before the Federal Trade Commission voted 5 to 0 to challenge the combination.

Since then, sources said the FTC has demanded Nestle sell more of Dreyer's national distribution network, which delivers its rivals' brands, as well as sell the Starbucks brand of coffee-flavored ice cream, which Oakland-based Dreyer's makes in a venture with Starbucks Corp.

Giving up the Starbucks line would not be a big loss for Nestle, said John McMillin, an analyst with Prudential Securities, because the brand is small. But winnowing Dreyer's lucrative distribution business would make the combination more costly. Dreyer's delivers products made for other companies, including Unilever's Ben & Jerry brand, to 59,000 stores in 48 states. Sales from these partner brands accounted for 44% of Dreyer's $295 million in sales last quarter.

"What makes Dreyer's so attractive is its distribution system," Pictet & Cie analyst James Amoroso told Bloomberg News.

Yet, there is a chance that Dreyer's delivery system could become less of a factor. Unilever has said it may exit its distribution contract with Dreyer's should the Nestle transaction go through.

Although some analysts believe the negotiations with the FTC could wind up in court, others say Nestle, which makes Haagen-Dazs, would be willing to give up Starbucks and other gourmet brands to move forward in its quest to become the world's largest ice cream maker.

"They are getting a major product, they don't care about super-premium," said Tom Burnett, president of Merger Insight.

U.S. regulators are concerned that Nestle's $2.8-billion proposed takeover of Dreyer's could harm consumers by reducing competition because together the companies make up 60% of the gourmet ice cream market.

Representatives of Nestle declined to comment, and Dreyer's officials could not be reached. Michael Cowie, head of the FTC's merger litigation task force, also declined to comment.

Dreyer's shares dropped $1.40 to $62.30 on Nasdaq.

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