Nestle sells U.S. ice cream business to PAI Venture

Nestle SA is selling its U.S. ice cream business that includes brands like Haagen-Dazs and Drumstick to a joint venture with private equity firm PAI Partners for $4 billion.

The venture, Froneri, already sells Nestle ice cream brands in much of the rest of the world. Nestle and PAI created it in 2016, merging the Swiss company’s ice cream businesses in 20 countries and R&R in the U.K.

The move creates a stronger challenger to Unilever, the global leader in ice cream with the Ben & Jerry’s and Magnum brands. It comes as Nestle Chief Executive Officer Mark Schneider divests slower-growing businesses like its U.S. confectionery operations while focusing on pet food, water and coffee for growth.

“Nestle has been up against Unilever for years,” said Duncan Fox, an analyst at Bloomberg Intelligence. “Having complete focus on ice cream makes it more likely for the merged brands to compete against Unilever’s global scale.”

Competition in the U.S. ice-cream market has intensified, as upstarts like Halo Top that offer healthier options eat away at bigger players’ market share. Unilever has responded with postmodern flavors like Turmeric Chai & Cinnamon or Matcha & Fudge.

The U.S. ice cream business being sold had sales of $1.8 billion in 2018, while Froneri had revenue of 2.9 billion Swiss francs ($2.9 billion), Nestle said.

Schneider signaled an appetite for deals at Nestle’s most recent financial update in October, after the $10 billion sale of a dermatology unit earlier this year. The company has said it aims to complete a review of its ailing European processed-meat brand Herta by the end of the year.

The ice cream deal also follows Nestle’s decision to cut some 4,000 jobs linked to the direct delivery system of frozen pizza and ice cream to stores, and instead transition to a warehouse model to lower costs.

Nestle is “convinced that Froneri’s successful business model can be extended to the U.S. market,” Schneider said in a statement, confirming an earlier Bloomberg report. The venture is gaining market share, Nestle said.

Froneri has leveraged loans outstanding worth 1.8 billion euros ($2 billion), in a mix of euros, sterling and Australian dollars, according to data compiled by Bloomberg.

The company is rated Ba3 by Moody’s Investors Service and B+ by S&P Global Ratings. It last tapped the loan market in June to fund the acquisition of New Zealand-based ice cream maker Tip Top, with Credit Suisse, Citibank and Goldman Sachs arranging that deal.

Bloomberg News