Nestle has struck a deal with Britain’s R&R Ice Cream to form a joint venture that will sell ice cream and frozen food in over 20 countries, its latest attempt to adapt to a changing and more competitive packaged food market.
The agreement announced on Wednesday caps months of talks between Nestle and R&R’s owner, PAI Partners, which were first reported by Reuters in October.
The venture follows a portfolio review aimed at improving Nestle’s performance, which has been weakened by slowing emerging markets, a change in consumer tastes toward fresher foods, and heightened competition.
The 50/50 joint venture, to be called Froneri, will combine the Nestle and R&R ice cream businesses in Europe, the Middle East, Argentina, Australia, Brazil, the Philippines and South Africa, marrying Nestle’s strong brands and presence in convenience stores and ice cream stands with R&R’s manufacturing agility and footprint at traditional retailers.
“We are doing this in order to reinforce our positions to compete in a marketplace in a revolution in retail,” Luis Cantarell, head of Nestle’s Europe, Middle East and Africa business, told Reuters. “They have better capabilities (at retail) and we see an opportunity of a more holistic approach.”
Cantarell will be chairman of a six-person board of directors that will be split between Nestle executives and those named by PAI, a French private equity firm. R&R Chief Executive Ibrahim Najafi will be CEO.
Even though Nestle has a stated goal of becoming a more health-focussed company, it will keep its stronger ice cream businesses in Asia and most of the Americas, and its position as the world’s second-largest ice cream company, behind Unilever .
Financial terms were not disclosed, but the venture will be a close No. 3 player, with annual sales of 2.7 billion Swiss francs ($2.78 billion) and 15,000 employees.
Froneri will be based in the United Kingdom, where it plans to eventually list on the London Stock Exchange.
“Long term, the objective will be to list the entity as we believe this will be quite an attractive growth story. We think it’s a natural outcome,” said Frederic Stevenin, partner at PAI.
Aside from the ice cream businesses of Nestle and R&R, which makes Cadbury Flake Cones and other frozen treats, Froneri will include Nestle’s European frozen food business, excluding pizza in Italy, and its chilled dairy business in the Philippines.
The executives declined to comment on the possibility of job cuts, saying the initial focus would be on growing sales, such as by filling gaps in the respective distribution networks.
“The strengths will come from innovation and from pushing growth because we believe there is a fantastic potential in a lot of countries where we could develop new propositions,” Cantarell said. “Then time will tell how the company will work.”
Following integration, the company would also be open to mergers and acquisitions, he said.
“We will look at all possibilities.”
Nestle has other joint ventures, with U.S. cereal maker General Mills and one with French dairy firm Lactalis.
The deal is expected to close around the end of the year, subject to employee consultations and regulatory approval.
Nestle was advised by Credit Suisse, while PAI was advised by Rothschild.
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