Sweet deal: Ferrero buys Nestle's US candy for $2.8 billion

Family-owned confectionery giant Ferrero has rebelled against the retreat from sugary snacks, executing a $2.8 billion buy-out of Nestlé's US confectionery business.

The deal will make Ferrero the third-largest player in the world chocolate market, behind fellow family business Mars, and Hershey's, which bid against the Italian company in the battle for Nestlé.

Led by executive chairman Giovanni Ferrero, founder Pietro Ferrero's grandson, the luxury Italian chocolatier has gone on a US deal spree over the last year, buying Fannie May in March 2017 then Ferrera for $1.3 billion in October.

By contrast, Giovanni Ferrero's father Michele was with the family business for more than 50 years without carrying out any acquisitions. He was rumoured to quash a 2009 deal to buy Cadbury, which his sons had lined up.

Michele Ferrero invented Nutella after inheriting a pastry shop and factory from his father, building it into a multinational dynasty. The reclusive tycoon, who died in 2015, has been likened to a real life Willy Wonka.

Now his son—whose brother Pietro died in an accident in 2011—is making a mark on the industry in his own way.

Giovanni Ferrero said the deal provided “substantially greater scale, a broader offering of high-quality products…and exciting new growth opportunities in the world's largest confectionery market”.

“We look forward to welcoming the talented team from Nestlé to Ferrero,” he said.

Ferrero's best-known products include Nutella, Ferrero Rocher, Kinder eggs and Tic Tacs, and it will now add more than 20 US brands including Crunch, Gobstopper, and Butterfinger to its portfolio. The sale did not include what is arguably Nestlé's most famous bar, KitKat, as this is a global brand.

Publicly-listed Nestlé announced in June it may look at selling its US chocolate and candy businesses, with numerous reports saying the Swiss company was shying away from sugar as more consumers favoured healthier snacks and luxury brands.

Mark Schneider, Nestlé chief executive, said the sale “allows Nestlé to invest and innovate across a range of categories where we see strong future growth”.

He named pet care, bottled water, coffee, and infant nutrition as such categories.

Raphael Moreau, senior food and nutrition analyst at Euromonitor International, said Nestlé's most prominent US chocolate, Butterfinger, had suffered against premium brands including Lindt and larger players like Mars.

“Although private equity companies have shown interest, it is likely that Ferrero would be willing to pay a higher price premium in order to achieve its strategic goal of boosting its presence in the US,” Moreau said.

He said given Nestlé's brands are not as premium as Ferrero's, their successful integration into the brand portfolio was “uncertain”, though the deal would likely give Ferrero better bargaining power with retailers.

Ferrero likely sees no reason to rein in its sweet tooth. Nearly 100 jars of Nutella will have sold around the world during the time taken to read this article, and Ferrero closed the 2016 financial year with consolidated revenue of €10.3 billion ($12.6 billion), up just over 8% on the year before.

The deal will be all the sweeter for Giovanni Ferrero given he publicly rebuffed Nestlé in 2013, amidst rumours the Swiss giant wanted to buy his company. He told the press Ferrero would “always” be a family business.