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Nestle boosts skincare business with $1.4 billion Valeant deal

By Martinne Geller and Alice Baghdjian

LONDON/ZURICH (Reuters) - Swiss food group Nestle accelerated a push into the fast-growing skincare market on Wednesday, buying the rights to several injectable treatments for facial wrinkles and lines from Valeant Pharmaceuticals International for $1.4 billion.

The world's biggest food group, with brands including KitKat chocolate bars, Gerber baby food and Nescafe coffee, signalled its ambitions in skin health products in February by taking over the Galderma dermatology venture it had with L'Oreal.

Wednesday's move gives Nestle the North American rights to some products taken on in that deal, boosting its control of the brands and avoiding the situation with KitKat, to which rival Hershey owns the rights in the United States.

For Quebec-based Valeant, the cash deal clears a potential antitrust hurdle to its proposed $49 billion takeover of U.S. rival Allergan Inc, which makes Botox, used to treat conditions from frown lines to overactive bladder.

For Nestle, the deal marks the latest step in a march begun almost two decades ago by Chairman and then-CEO Peter Brabeck-Lemathe to transform the sweets company into a global leader in nutrition, health and wellness, although some analysts question whether cosmetic skin treatments fit into that category.

"They are trying to squeeze it under a wellness umbrella. It's a stretch," said a European food analyst.

The world's biggest producers of packaged foods are moving increasingly towards healthier food products or personal care goods that offer faster sales growth and wider profit margins.

Citing data from GlobalData Facial Aesthetics, Vontobel analysts said the U.S. market for Botox and other wrinkle fillers was set to grow from $2.5 billion in 2013 to $4.7 billion in 2018 - compound annual growth of 13.5 percent.

"These figures speak for themselves and explain how strategic the deal is for Nestle/Galderma," said the analysts, who rate Nestle stock a "buy".

Nestle shares, which have performed just ahead of the FTSE Eurofirst 300 Consumer Goods Index this year, were up 0.4 percent at 69.85 Swiss francs by 1515 GMT.

SKIN FILLER

Nestle said the deal with Valeant would give it the U.S. and Canadian rights to sell the Restylane, Perlane and Emervel injectable cosmetic treatments it already manufactures, as well as Dysport, a cosmetic treatment owned by Ipsen.

It is also acquiring from Valeant a skin filler for cosmetic and medical use called Sculptra.

Valeant, which inherited the North American rights in its 2012 acquisition of Medicis, said the deal fit with its plans. It raised its bid for Allergan a few hours after announcing the deal with Nestle. [ID:nWNBB04I9O]

“By selling it ahead of time we have eliminated one more roadblock in terms of our integration with Allergan and we were able to get a price that was more than five times sales, so we think it also creates real shareholder value,” said Valeant Chief Executive Michael Pearson.

By comparison, Nestle paid 3.9 times sales to take over Galderma. Valeant's earlier, spurned offer for Allergan was worth 7.1 times sales.

NESTLE HEALTH

Beside its new Skin Health division, Nestle has a unit called Nestle Health Science that sells medical nutrition products for people with specific dietary needs related to illness or disease. It is also on a shortlist of bidders for the medical nutrition business of Danone, valued at about 4 billion euros ($5.5 billion), sources have told Reuters.

Nestle Health Science is working as well to develop products in gastrointestinal, metabolic and brain health.

"I can see the rationale behind that," said Berenberg Bank analyst Fintan Ryan. "Nutrition and health is becoming more important to consumers, so it's increasingly going to be a bigger part of what Nestle does.”

When it comes to the skin business, Ryan was more skeptical.

"I don't see this being the future of Nestle," he said.

(Additional reporting Ben Hirschler in London and Rod Nickel in Winnipeg; Editing by Mark Potter and Tom Pfeiffer)

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