Nestle sells U.S. candy unit to Nutella maker Ferrero for $2.8 billion in push toward healthier foods

Nestle SA agreed to sell its U.S. confectionery unit to Ferrero SpA, the Italian maker of Nutella, for US$2.8 billion, in the first substantial step away from the candy industry by the company that invented milk chocolate.

The sale of the unit, which includes the Butterfinger and Baby Ruth brands, is also the first major divestment by the Swiss food giant since Chief Executive Officer Mark Schneider took the helm last year. Nestle plans to focus on healthier and faster-growing categories like coffee, pet food and water as the food industry grapples with a drop in demand for sugary products.

“Our commitment to invest in the U.S. is as big as ever,” Nestle USA chief Paul Grimwood said on a call.

The U.S. chocolate industry is in tumult. Hershey Co. has been cutting 15 per cent of its workforce and Lindt & Spruengli AG on Tuesday reported its weakest organic sales growth since 2009 amid sluggish demand in North America.

The Nestle unit, which also includes brands like Oh Henry!, Laffy Taffy and Nerds, is suffering a decline in revenue and had sales of about US$900 million in 2016. Nestle said in a statement announcing the sale that it remains “fully committed” to its chocolate business around the world. That includes KitKat, which it produces globally except for the U.S., where Hershey Co. owns the rights.

Closely held Ferrero has been pushing harder into the U.S. Last year it snapped up Ferrara Candy Co., the maker of Red Hots and Lemonhead candies, as well as confectioner Fannie May.

The sale to Ferrero, which does not include the Toll House brand of baking products, is expected to close around the end of the first quarter, Nestle said. The business represents about 3 per cent of the Swiss company’s U.S. sales.

Nestle said in June it was considering options for the U.S. confectionery unit, and said it attracted significant interest from bidders in July. In December, the company said it expected to sell the business in the first quarter of 2018.

Hershey, which was named as one of the potential bidders, last month agreed to pay US$921 million for Amplify Snack Brands Inc. to expand into popcorn and potato chips.

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