Nestlé steps up ice-cream war with Unilever by buying Dreyer's

The Swiss food giant Nestlé yesterday won an important strategic victory in the global ice-cream wars, scooping up control of America's largest ice-cream maker Dreyer's to edge Unilever out of the number one slot in the world's biggest ice-cream market.

Nestlé, which still trails Unilever in the world ice-cream industry by about 13 per cent to 17 per cent, agreed to merge its US ice-cream operations with Dreyer's Grand Ice Cream. The deal will create a company with a stock market value of $4bn (£2.8bn) that will dominate the US premium ice-cream market, home to the world's most voracious ice-cream eaters.

Nestlé, which is seeking to boost sales by diversifying into faster growing markets such as bottled water, pet foods and ice-cream, will receive 55 million new Dreyer's shares, giving it 67 per cent of the enlarged business, which will retain its Nasdaq listing. It previously owned 23 per cent of Dreyer's.

Analysts said the deal, which is subject to Dreyer's shareholder approval, would put pressure on Unilever, the Dove soap to Flora margarine food group, which bought the Ben & Jerry's ice-cream brand in 2000 for $326m. Unilever has said it intends to build the niche Vermont-based business, which was set up by two hippies, into a global brand.

"[ice-cream] is becoming a global battle between Unilever and Nestlé. It could be that the US will be the major battlefield," said Andrew Wood, a food sector analyst at Bernstein, who likened yesterday's deal to the Cola wars that have seen Coke and Pepsi carve up the global market place.

Nestlé said the decision to combine its US ice-cream business, which was created as a joint venture with Pillsbury in 1999, with Dreyer's would allow it to "significantly grow sales" in the US market – worth around $11bn a year. "This move underscores our commitment to growing and improving our ice-cream business," said Peter Brabeck, Nestlé's chief executive.

In the past six months Nestlé has stepped up the pace in its quest to knock Unilever off the number one ice-cream spot. The Dreyer's deal comes just a couple of months after it boosted its position in the European ice-cream market with the acquisition of Germany's Scholler. In December, Nestlé gained full control of the luxury Häagen-Dazs brand in the US and Canada for $641m. However, Nestlé, which last year sold its UK ice-cream business to Richmond Foods because it was unprofitable, still lags Unilever in Europe.

Analysts expect Nestlé to bid for the Häagen-Dazs business in the rest of the world, which is owned by General Mills. "Nestlé has holes in its global ice-cream business that something like Häagen-Dazs will fill. [Buying it] would be the next logical step," said Mr Wood.

A Nestlé spokesman said the Dreyer's deal would give the Swiss food group access to Dreyer's "innovative direct store distribution system". Operating efficiencies are expected to yield $170m annually by 2005, he added.

Although Dreyer's dominates ice-cream sales in grocery stores across the US with Dreyer's and Edy's brands, its ice-cream is practically unknown in the rest of the world. A Nestlé spokesman said the group would seek to globalise the brands as part of its continuing battle to dominate ice-cream sales worldwide.

The California-based Dreyer's was founded by Bill Dreyer in 1929 after the stock market crash with the creation of Rocky Road, the popular flavour that combines almonds, mini marshmallows and chocolate ice-cream. Just under two-thirds of Dreyer's $1.4bn sales in 2001 came from its own brands and the remainder from distributing rival products manufactured by Unilever, Mars and Ben & Jerry's. The company also makes a range of coffee-flavoured ice-creams for Starbucks, the global coffee shop owner.

The new ice-cream business will be run by T Gary Rogers, Dreyer's chairman and chief executive, out of Dreyer's existing offices in Oakland, California. Mr Rogers has run Dreyer's since acquiring it in 1977.