(Bloomberg) -- Nestle SA agreed to sell bottled-water brands in the U.S. and Canada to private-equity firm One Rock Capital Partners in a $4.3 billion deal that puts the future of the ailing business in the hands of the man who helped turn around Pabst Blue Ribbon and Hostess Twinkies.
Dean Metropoulos is joining up in One Rock’s purchase of the Nestle brands, which include Poland Spring, Pure Life and Deer Park. The billionaire investor is known for reviving worn-out products like Bumble Bee Tuna and Chef Boyardee.
Bottled water has been a headache for Nestle Chief Executive Officer Mark Schneider and will be challenging to fix. The segment eclipsed soft drinks in popularity in the U.S. after a surge in demand in the early 2000s. That attracted low-price competition and criticism that the business wastes plastic and precious natural resources. In 2020, Covid-19 restrictions pummeled consumption, as a large proportion of bottled water is consumed in restaurants and tourist destinations.
As big producers such as Coca-Cola Co. and PepsiCo Inc. try to find ways to sell water in more environmentally sound ways, the question remains whether Metropoulos will succeed in cracking a problem that Nestle preferred to step away from.
No Pricing Power
“Winning in the category will be a challenge, as private-label mineral water has a high market share in the U.S.,” said Duncan Fox, an analyst at Bloomberg Intelligence. “There is no brand pricing power there, or else Nestle would and could have done it.”
Still, Schneider isn’t exiting the segment completely, just divesting the less profitable labels. Nestle’s international premium waters including Perrier, San Pellegrino and Acqua Panna are not part of the deal.
Bottled water was the source of almost a tenth of Nestle’s revenue before the pandemic, and the company has pledged to make its entire water portfolio carbon-neutral by 2025.
The Swiss food giant has been revamping its portfolio since Schneider took over in 2017, as he focuses on areas like coffee and pet food while pivoting away from snacks.
The water sale is Schneider’s second-largest disposal, following the 10.2 billion-franc divestment of a skincare business. The CEO has already trimmed its U.S. confectionery brands and folded its ice cream business there into a joint venture.
Nestle’s North American water business had sales of about 3.4 billion francs ($3.8 billion) in 2019, excluding the international brands.
The valuation “is highly attractive for such an underperforming business,” Jean-Philippe Bertschy, an analyst at Bank Vontobel AG, wrote in a note. “The proceeds will be invested in higher-return businesses: a virtual circle.
One Rock focuses on what it calls high-potential middle-market businesses, with investments via three funds, according to its website.
(Updates with details on Metropoulos from first paragraph)
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