ABF will give shot in the arm to Ovaltine

Novartis, the Swiss pharmaceutical group, has finally completed the sale of its food and beverage business some six months or so after it first announced its decision to quit the food sector and focus on its core drug brands.

The business, which includes the Ovaltine/Ovomaltine, Caotina and Lacovo brands, has been bought by Associated British Foods (ABF), the food, ingredients and retail group, for €272.5 million. The deal gives the UK-based group the rights to the brands everywhere except for the US and Puerto Rico. Manufacturing facilities included in the acquisition are in Switzerland, Thailand, the Philippines, China and Australia.

While the malt-based brand Ovaltine - or Ovomaltine as it is known outside the UK - is already a major international brand, with leading market positions in both Asia and Europe, Novartis said that the sale to ABF would allow it to "become part of a consumer product business that will optimise its growth"​.

Paul Choffat, CEO of Novartis Consumer Health, said: "We believe that the new owner of Ovaltine/Ovomaltine, Caotina and Lacovo has the relevant geographic reach, distribution presence, and marketing expertise in the consumer industry to exploit the brands' potential. The food and beverage brands will be key businesses for ABF and we expect that they will receive the necessary resources for future growth."​

That the brand will fit better with ABF than it did with Novartis is clear. ABF is the owner of the Twinings tea brand, and so has a great deal of experience in the hot beverages sector. Twinings has delivered substantial growth over a number of years and had sales of over £200 million (€319m) in the financial year to September 2001. Ovaltine's sales for the similar period were €244 million.

But Ovaltine, much more than the hot chocolate and coffee brands which are also part of the deal, will allow ABF to move into the functional food market in a major way. ABF said that the malt brand, which is available as a powder, a ready-to-drink beverage, and as confectionery or snack bars, had significant potential for growth given the popularity of food products which provide both energy and added nutrition. That popularity is clear from the figures: Ovaltine/Ovomaltine sales have grown by 4 per cent a year for the last two years.

Peter Jackson, chief executive of ABF, said: "Ovaltine with its strong international position and first rate management will provide an excellent growth investment for ABF. Alongside Twinings it will create an even stronger international business with an improved capacity for growth, both organically and through further acquisition."​

ABF said that the acquisition, which will be earnings enhancing from the outset, would be financed from existing resources.

The sale of Ovaltine is not the end of Novartis participation in the food and drink sector, however -that will only come once a buyer has been found for the health and functional food operations, including the Isostar sports drink. Negotiations are currently underway regarding the sale of this business, with Nestle among the leading candidates to acquire the brands.