Nestle To Buy Purina for $10.3 Billion

Z U R I C H, Jan. 16 -- Swiss food group Nestle SA has agreed to buy Ralston Purina Co in a $10.3 billion deal,turning one of its fastest growing businesses into the world'slargest pet-food company.

Nestle is offering $33.50 in cash per share for theoutstanding shares in Ralston, a 36 percent premium to theclosing price for Ralston on Friday, January 12 and valuing theU.S. firm's total equity at $10 billion.

Nestle will also assume $1.2 billion in debt but will gain$0.9 billion from Ralston's financial investments.

The Swiss company, whose existing brands in the over $25billion a year pet-food market include Friskies cat food andMighty Dog, has seen the business become one of its fastestgrowing areas since its entry into the market in 1985.

$6.3 Billion in Pet Food Sales

With the acquisition its pet-food sales will reach $6.3billion, putting it ahead of the previous market leader,privately held Mars Inc., which had sales last year of $5.85billion.

"It's a really good thing for Nestle. Ralston is secondworldwide in pet food sales, behind Mars," said analyst AmandaHopkins at fund managers Union Bancaire Privee in Geneva."Pet-food sales are growing by about 6.5 per cent annually,about double that for human food."

Nestle shares were 1.9 percent higher at 3,539 Swiss francsat 0924 GMT. The share has outperformed the SMI blue-chip indexby 7.50 percent in the past year.

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Nestle said the merger would be cash accretive to earningsper share at the end of the first year and lead to cost savingsof $260 million annually by 2003.

It expected a positive influence of top line growth andprofitability in the years to come.

Debt vs. Dollars

Sources in London said Nestle would finance the equity partof the deal with $7 billion in debt and $3 billion from its owncash.

"The amount of this transaction does not surpass thefinancial facilities of the group," said Nestle spokesmanFrancois-Xavier Perroud.

He said the company had a large cash facility, planned toarrange a rolling finance facility with banks and could alsosell so-called Treasury stock — Nestle shares the company ownsitself.