Is Blackmores a target for Swiss giant Nestle?

Blackmores has been speculated as a takeover target for some time, but now could be the right time for aa buyer like Nestle to pounce.

Could Nestle be a buyer of Blackmores?

Analysts at Credit Suisse believe it could be on the cards.

In late June, Nestle agreed to acquire the Better Health Company, a leading vitamin and supplements company in New Zealand.

The analysts estimate that Better Health has less than 2 per cent market share in Australia.

“If Nestle desires a leading position in Australia with export to Asia, Blackmores remains a good fit, in our view,” the analysts said in a research note.

“There should be significant synergy between a multinational functional food company with extensive operations in Australia and Blackmores.”

The vitamin company is currently worth $1.36bn with its share price falling from $92 in December to $74.

Barrenjoey has been working as Blackmore’s defence adviser.

Major shareholder Marcus Blackmore was working with Rothschild late last year to find a buyer of his 23 per cent interest after a disagreement with the company’s board over director appointments.

But in February, when its market value was $1.69bn and its share price was $89, some believed that the stock was too expensive for a buyout fund to acquire the business.

Another factor worth considering is that any buyer needs confidence and expertise around trading into China where Blackmores has seen much of its demand come from in the past.

Yet Credit Suisse analysts, which have a $90 price target on the stock, say that China e-commerce has traded strongly through Covid lockdowns and Blackmores has been gaining shares in the growing vitamins and supplements category.

China represents an estimated 20 per to 25 per cent of the company’s sales and just under 20 per cent of earnings before interest and tax and Credit Suisse expects China sales to grow 15 per cent for the second half of 2022.

This is after Blackmores scored 9 per cent of sales growth in China in the six months to December, and this financial year, and Credit Suisse expects growth to continue accelerating to double-digits.

Assisting sales will be the intense cold and flu season, with cases of influenza breaking all records over the past five years, peaking early.

Previously a market darling, Blackmores shares soared to $200 in 2015 on the back of demand from China after trading at about $30 in 2014.

But they later came off the boil after China trade fell into decline.

While Blackmores could at some stage be a target for a group like Wesfarmers or private equity at the right price, others are sceptical a group like Nestle would be an acquirer given it is not a large global brand with a lot of intellectual property in a market with low barriers to entry.

Chinese groups are no longer part of the conversation because they would not gain Foreign Investment Review Board approval.

The company missed its chance to sell at the peak of the market, says one industry insider.

One acquirer could be the business interests of Radek Sali should Blackmores shares get cheaper, given he previously ran its rival Suisse before it was sold to China’s Biostime in 2015.