2010-07-01 09:39

Firm may go on buying spree with $28.1b proceeds from Alcon sale

GENEVA - Nestle SA has a $28.1 billion question and investors have plenty of answers.

Nestle's Nescafe on display in a supermarket in Biel, Switzerland. Nestle will get $28.1 billion from Novartis for its Alcon stake. [ADRIAN MOSER / BLOOMBERG NEWS]

Europe's largest company by market value could buy almost any publicly traded food asset with cash when it gets paid for its Alcon Inc stake in the second half. Investors want the maker of KitKat bars and Haagen-Dazs ice cream to expand in emerging markets to catch up with Unilever, which gets about half of its sales in developing countries.

"The world is their oyster, but the pearls can't be too expensive," said Wendy Trevisani, a fund manager at Thornburg Investment Management in Santa Fe, New Mexico, which has more than $700 million invested in Nestle shares. "They're clearly a laggard in emerging markets."

Nestle will receive $28.1 billion from Novartis AG for its majority stake in Alcon, the maker of Opti-Free contact lens cleaners, giving it a cash pile exceeding the $26.5 billion that Google Inc had on its books at the end of March. The Swiss company is starting a new 10 billion-franc buyback program, though Nestle would rather invest in its business or make acquisitions, Chief Financial Officer Jim Singh said on June 22.

About one billion consumers in emerging markets will increase their incomes enough to be able to afford Nestle products within the next decade, the Vevey, Switzerland-based company estimates. The world's largest food company gets about a third of its revenue from emerging economies and Chief Executive Officer Paul Bulcke aims to lift that to 45 percent within a decade.

Nestle's sales in emerging markets rose 8.5 percent last year, double the rate of the company's total revenue.

Shares in Nestle, which no analyst recommends selling according to 42 ratings tracked by Bloomberg, are up 5.3 percent this year. Unilever has risen 1.4 percent. Kraft Foods Inc, the world's second-largest foodmaker, has gained 6.5 percent.