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Chef America deal of Nestle cleared

Zurich, Sept. 12 (Reuters): Nestle SA said on Thursday the US Federal Trade Commission cleared its $ 2.6 billion purchase of Chef America, the fifth largest US frozen food producer, and said the deal would close immediately.

The deal allows Nestle, the world’s biggest food group, bolster its position in the fast-growing US frozen food market. Chef America is best known in the United States for its Hot Pockets, Lean Pockets and Croissant Pockets brands.

The transaction is the latest in the fast consolidating food industry where Nestle is particularly active, having bought US pet food maker Ralston Purina in a $ 10-billion deal last year.

Nestle is also seen as frontrunner in the race to buy US chocolate maker Hershey in a deal seen topping $ 10 billion as it seeks to become the top one or two in all of the markets where it operates. Nestle is currently third in the US chocolate confectionery market, the world’s biggest.

The frozen food industry is attractive as on-the-go US consumers demand more convenience products beyond the traditional TV dinners. The Chef America deal makes Nestle market leader in two of three key areas in the world’s biggest frozen food market.

Nestle is pushing aggressively to expand its presence in the United States, already its single largest geographical market, accounting for almost a quarter of group sales of 84.7 billion Swiss francs last year.

Chef America is expected to have sales of around $ 722 million this year, with gross EBITDA profit of $ 198 million, giving an EBITDA margin of 27 per cent. Nestle’s EBITDA margin in 2001 was 15 per cent.

Nestle is paying $ 2.6 billion for Chef America, but it would receive a total of $ 600 million back in tax benefits related to goodwill deductions over the next 15 years.

The Chef America deal is expected to deliver savings of $ 43 million by 2007 and would be accretive to earnings in 2003.

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