Novartis to shed its functional foods operations

Novartis of Switzerland has announced its intention of divesting itsHealth & Functional Foods business, which had sales of around 850 million Swiss francs ($498 million) in 2001. The business includes food and beverages, including the flagship Ovaltine brand, health and slimming products and sports nutrition brands such as Isostar. Novartis has appointed Credit Suisse First Boston to coordinate the divestment process, which is expected to take six to 12 months, and analysts have tipped Nestle and Danone as companies likely to be interested in acquiring the business.

Novartis' Consumer Health division will now focus on its remaining areas of over-the-counter medicines, infant and baby nutrition (including the Gerber brand), the CIBA Vision ophthalmics unit, animal health and medical nutrition, all of which have now been re-aligned into discrete business units. The company's chief executive, Daniel Vasella, said that the H&FF brands are strong and well-established and "can be accelerated in companies where there is a good strategic fit."

However, the business has shown little growth over the past couple of years and has lower margins than Novartis' other activities. Many analysts have questioned the logic of pursuing a strategy in functional foods, suggesting that a better approach would be to concentrate on the lucrative pharmaceuticals activities. Novartis appears to have been of the same mind, with Dr Vasella noting that the divestment sits with its "strategic focus on health care with pharmaceuticals at the core." Indeed, Novartis has been heading in this direction since the mid- to late-1990s, when the firm took the decision to dismantle its integrated "life sciences" concept.