Nestle in talks to sell frozen food unit to Bain-owned company

Nestle, the world's largest group by sales, aims to curb costs further by entering exclusive talks to sell Davigel, its frozen food unit, to a food services company owned by Bain Capital.

The Swiss-based producer behind KitKat, Nespresso coffee and Maggi stock cubes confirmed on Wednesday that it was in talks with the Brakes Group, having effectively put Davigel up for sale in November when it said it was exploring "strategic options" for the French business.

If the talks are successful, Davigel would be the latest of many disposals over the past two years as Nestle slims down after Paul Bulcke, chief executive, said he would shed underperforming or non-core businesses. The group has struggled to hit its sales targets given weak consumer demand and, more recently, a strong Swiss franc.

No financial details were given, but analysts have valued Davigel at up to €300m - the equivalent of 0.3 per cent of Nestle's annual sales last year of SFr91.6bn.

James Edwardes Jones, analyst at RBC Capital Markets, said: "This is small beer by Nestle standards, but is in line with its strategy of imposing greater capital discipline. It also signals to managers of underperforming businesses that they need to improve or risk divestment."

Disposals so far have included the Jenny Craig weight management business to a US private equity group, a South African ice cream business and PowerBar energy snacks.

Davigel is based in Dieppe, northern France and sells ice cream and chilled foods to restaurants and caterers. Nestle inherited it as part of its 1989 acquisition of the Buitoni frozen food business. It has annual sales of €650m and €20m of earnings before interest, tax depreciation and amortisation.

Brakes Group, acquired by Bain Capital in 2007, is based in Kent, southern England and has a portfolio of food service companies that it operates in Europe.

The industry is having to adapt to changing consumer tastes, particularly in the US, where rising obesity levels are pressuring companies to develop healthier products. Nestle has been investing in its healthcare business, particularly in the field of nutrition.

Mr Edwardes Jones said Nestle's disposals had fallen to an unusually low level in Mr Bulcke's first five years, but the company was reverting to its previous strategy.

The group raised SFr390m from selling businesses (excluding the 2010 sale of Alcon, the eyecare group) between 2008 and 2012. But in the 20 years to 2012, disposals had averaged SFr440m a year.

The impending deal with Brakes Group was first reported by French newspaper Les Echos.

Nestle's shares closed 0.7 per cent higher at SFr76.10.

Credit Suisse is advising Nestle and Goldman Sachs is advising Brakes Group.

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