April 27, 2016 / 6:41 AM / in a year

Nestle agrees ice cream joint venture with UK's R&R

The Nestle logo is pictured on the company headquarters building in Vevey, Switzerland February 18, 2016. REUTERS/Pierre Albouy

LONDON (Reuters) - Nestle (NESN.S) 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 more than 20 countries, its latest attempt to adapt to a changing and more competitive market.

The agreement announced on Wednesday caps months of talks between Nestle and R&R’s owner, PAI Partners, 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 ability and access to traditional retailers.

“The Froneri JV is fully in line with Nestle’s strategy to better manage its product portfolio,” said Vontobel analyst Jean-Philippe Bertschy, who estimated the deal would lift Nestle’s 2017 profit margins by 20-25 basis points.

Bertschy noted Nestle had divested more than 25 business units in the past four years. Rivals Unilever (ULVR.L) and Procter & Gamble (PG.N) have also sold underperforming assets as slowing global growth has put more focus on profits.

Luis Cantarell, head of Nestle’s Europe, Middle East and Africa business, will chair Froneri’s six-person board split between Nestle executives and those named by PAI, a French private equity firm. R&R Chief Executive Ibrahim Najafi will be CEO.

Nestle, which is aiming to become a more health-focused company, 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 ($2.8 billion) and 15,000 employees.

LONDON LISTING

Froneri will be based in the United Kingdom, where it plans to eventually list on the London Stock Exchange.

Mass-market ice cream has come under pressure, as consumers look for healthier or more artisanal options, opening up the market to smaller players.

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 and retail frozen food in Italy, and its chilled dairy business in the Philippines.

The partners 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.

Following integration, the venture will also be open to mergers and acquisitions, Cantarell told Reuters.

“We will look at all possibilities,” he said.

Nestle has other joint ventures, with U.S. cereal maker General Mills (GIS.N) 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.

Editing by Susan Thomas and Mark Potter

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