Business Blog: Hoover’s Business Insight Zone

The top company on this month’s Hoover’s Index list is Gerber, which drew tons of attention in April after its parent company, the drug giant Novartis, agree to sell Gerber to the world’s #1 food company, Nestle, for $5.5 billion. In a sense, this is a transaction between neighbors, since Novartis and Nestlé are two of Switzerland’s largest corporate citizens.

Why this deal makes sense for the seller: Novartis has long operated across several market sectors, but its bread and butter is healthcare. Last year, Novartis drew three-fifths of its revenue from prescription drugs (Diovan, Zometa, Lotrel, etc.) and another 15% from the generic drugs sold by its Sandoz subsidiary. Disposing of Gerber fits in with Novartis’ focus on drugs and other healthcare products. (The same logic held when Novartis sold its medical nutrition business to Nestle in 2006 for about $2.5 billion.)

Why this deal makes sense for the buyer: Although Americans are much likelier to associate Gerber’s name than Nestle’s with baby food, in fact Nestle is already a dominant player in that market worldwide. Nestle likes being a global #1 — it holds that position in coffee (Nescafe), pet food (Purina), and other segments, and the Gerber purchase moves the Swiss giant into the top spot for baby food as well.