Nestle working with Morgan Stanley on North American waters divestiture, sources say

Nestle SA [SWX:NESN] has retained Morgan Stanley as it explores strategic options, including a potential sale, for majority of the Nestle Waters business in North America, four sources familiar with the situation said.

The sale process is expected to launch after Labor Day, three of the sources said.

Earlier this month, the Switzerland-based food and beverages multinational announced it had decided to explore strategic options for the majority of the Nestlé Waters business in North America, excluding its international brands. The company said this will help it sharpen its focus on its “iconic international brands, premium mineral water brands, and invest in differentiated healthy hydration, such as functional water products.”

The Nestle Waters business, based in Stamford, Connecticut, generates EBITDA in the USD 450m to USD 500m range, each of the sources said. Two of these sources said the valuation could hover in the 9x-10x EBITDA range.

The Nestlé Waters business in North America, excluding international brands, had sales of around CHF 3.4bn (USD 3.6bn) in 2019, according to a press release.

The sale process is expected to draw heavy interest from financial sponsors as well as some strategic interest, three sources familiar and a sector advisor said.

German daily Boersen Zeitung reported earlier this week that potential bidders could include drinks giants Coca-Cola [NASDAQ:COKE] and PepsiCo [NASDAQ:PEP], Primo Water [NASDAQ:PRMW], formerly Cott Corporation,and National Beverage [NASDAQ:FIZZ].

Some sources said Primo would have been a good suitor for Nestle Water, but the company wrapped up its own deal recently. In January, Cott announced it would acquire Primo for USD 775m, and rebrand itself as Primo. Primo is a provider of water dispensers, purified bottled water, and self-service refill drinking water in the US and Canada.

Another of the sources said SPACs could also show interest in acquiring the asset. Advent International and Centerbridge Partners-backed Culligan could be another suitor for Nestle Water business, the sector advisor said.

Prior to the announcement, Nestle was earlier this year exploring the sale some of the assets under its Water umbrella, two of the sources familiar said.

Nestle said regional spring water brands, purified water business and beverage delivery service at its Nestlé Waters North America unit lie outside this focus.

Apart from the retained International brands, the divest portfolio includes popular regional US spring water brands such as Poland Spring, Deer Park, OzarkaIce MountainZephyrhills and Arrowhead. It also comprises the direct-to-consumer and office beverage delivery service ReadyRefresh by Nestlé, and the Nestlé Pure Life brand. The company said it remains fully committed to growing its iconic International brands in the US and globally, including Perrier, S.Pellegrino and Acqua Panna.

This review is expected to be completed by early 2021, according to the company.

Nestle and Morgan Stanley declined comment.

by Bhavna Kaul and Emily Fasold with additional reporting by Anastasia Donde

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