Nestle Rowntree

I recommend that Nestlé acquire Rowntree. if Nestlé does not purchase Rowntree now, they will lose the opportunity to Suchard. Nestlé would lose the opportunity to quickly and effectively build the Nestlé global brand though this acquisition with a company that has such common core values and goals as Nestlé. Exhibit 1 talks about Nestlé's growth strategy.

Industry Analysis

The chocolate industry was mature with slow growth (Exhibit 2). Chocolate was the most consumed food product by value - 1987 total retail value of chocolate for world's 8 largest markets was $19.5 billion. Block chocolate annual growth was 1%; Nestlé had 14% of the market in 1987. Chocolate sales were divided into three main product segments: block, countline, and boxed. Of the three product segments countline was the fastest growing. Nestlé had 1% of the market in countlines. Companies achieved growth through mergers and acquisitions; consolidation occurred within the marketplace, with companies looking to lower production costs through increasing their economies of scope and scale, and moving toward fewer, more-concentrated production plants. Given the growth is in Countlines, it is not surprising that Nestlé wants to get into this product segment (Exhibit 3).

Nestlé's Strategy

The company had a market-oriented organization structure, building their products based on the demand and expectations of each market they were in, and believed in positioning their company in the market for the long run (Exhibit 4). Nestlé's strategy dictated a clear policy on acquisitions, believing that any company acquired must either strengthen their position in existing markets or allow them to enter new fields. They believed in looking at the long-term effect of their decisions, deciding to build brands and undertake only friendly acquisitions in order to ensure that any company purchased would easily come on board. It can be easily generalized that Nestlé would be a great parent for Rowntree, given its history of acquisitions, and its success in executing the acquisitions.

Advantages of a merger

Exhibit 6 talks about the chocolate industry in general, and its key market drivers. Rowntree had established itself since the 20th century with its countline & boxed products (Exhibit 5).Through a consolidation of Nestlé-Rowntree, Nestlé could save between 5 and 15% of Rowntree's fixed overhead expenses. This does not take into account any revenue synergies and cost of goods sold savings. Synergies from this deal include

1. Synergies: There are many similarities all along the value chain such as supplies, production methods, distribution, and marketing. Synergies would be created all along the value chain.

a. Purchasing could be conducted on a larger scale increasing Nestlé's buying power

b. Factories