Nestle has been rated A+ by international ratings agency, Fitch.
This follows an intensified mergers and acquisitions (M&A) activity in 2020 which confirms Fitch Ratings’ view that proceeds from asset divestments will be redeployed for bolt-on M&A rather than debt repayment.
“Along with share repurchases under a CHF20 billion programme, we expect M&A spending to push leverage higher, towards levels commensurate with Nestle’s ‘A+’ rating. We reflected these expectations in the downgrade from ‘AA-‘ in October 2019”, Fitch explained.
On 31 August 2020, Nestle announced it will acquire the remaining 74% stake in allergy treatment producer, Aimmune Therapeutics, Inc. for a total enterprise value of US$2.6 billion.
This large transaction marks a rebound in M&A activity in the sector in the third quarter of 2020 after activity slowed in the second quarter of 2020 as the coronavirus pandemic created an extremely uncertain operating environment and challenges in the supply chain and the food service channel.
The packaged food sector is one of the sectors least affected by the pandemic, and Nestle has demonstrated this by growing its sales organically by 2.8 percent in half-year 2020.
The acquisition of Aimmune will add to the CHF1.6 billion already spent on acquisitions in half-year 2020, which in turn will contribute to total spending in 2020 being substantially higher than the CHF0.7 billion Nestle spent in 2019.
In a previous large deal in January this year, Nestle acquired gastrointestinal medication Zenpep. Both transactions complement Nestle Health Science’s operations – the division focused on nutritional science products and representing, along with food and beverages, Nestle’s core business.
Nestle has been rebalancing its portfolio by shifting away from low-growth operations and those that are no longer strategic.
“We expect the strategic review of parts of Nestle’s water business in North America and of Yinlu Foods Group’s peanut milk and canned rice porridge businesses in China to result in the sale of these operations in 2021. Our rating case assumes that disposal proceeds will be used to fund CHF7.5 billion of M&A over 2021-2023, for the acquisition of businesses that should help Nestle to increase its organic sales growth to 4%-6% from 3.5% in 2019”, Fitch emphasised .
Nestle has a subsidiary in Ghana, whilst the West Africa office is located in Ghana as well.
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