Nestlé, the world’s largest packaged foods company, has announced it is engaged in advanced talks with Britain’s R&R Group regarding the formation of an ice cream joint venture that will have an expected annual turnover of US$3.1 billion.

 

Under the structure of the proposed tie-up with R&R, which is owned by French private equity firm PAI Partners, each company would own a 50% share in the venture, which would operate in more than 20 countries and employ more than 10,000 people.

 

Nestlé currently controls approximately 10.8% of the world’s ice cream market, while R&R holds 0.8% according to Euromonitor. Nestlé states that it is creating this partnership as a vehicle through which to increase sales and better compete with rival company, Unilever PLC, which controls 22.8% of the market and which recently announced its plans to buy Italian ice cream maker, Grom.

 

The focus by Nestlé on ice cream is not surprising. Although both Nestlé and Unilever have been slowly divesting segments of their food businesses, including Nestlé selling a 10% stake in flavor company, Givaudan, selling its PowerBar nutrition business to Post Holdings, selling its Jenny Craig business in Oceania and North America to North Coastal Partners, and selling its La Cocinera frozen food business to Findus Group, ice cream has been a promising area of growth for the industry, with a projected market value of $107 billion by 2020, up from a current value of $71 billion according to Euromonitor.

 

The value of the deal has initially be announced at US$3.4 billion by Reuters, which added that if the deal was successfully completed, PAI could, in the future, sell its stake in R&R, leaving Nestlé open to list the combined business. Spokesmen for both companies have declined to comment on the possibility.

 

This joint venture deal would not include Nestlé’s North American ice cream business which includes the brands, Edy’s and Dryer’s, or its business in Israel, however, the venture would include Nestlé’s business in Europe, Egypt, the Philippines, Brazil, and Argentina, and Nestlé would transfer its European frozen food business, excluding any pizza production. In March of this year, Nestlé had already agreed to sell its South African ice cream business to R&R.

 

If successfully completed, the new venture would be launched next year and will be chaired by Nestlé’s executive vice president for Europe, the Middle East and North Africa, Luis Cantarell, while the chief executive for the new company would be R&R CEO, Ibrahim Najafi.