Nestle to Acquire Peanuts Allergic Treatment Maker Aimmune Therapeutics for $2 Billion; Target Price CHF 120

Nestle SA, the world’s largest food & beverage company, said it will completely acquire a biopharmaceutical company Aimmune Therapeutics, which has the first and only FDA-approved treatment to help reduce the frequency and severity of allergic reaction to peanuts, for $2 billion.

Nestle Health Science (NHSc) currently has a total investment in Aimmune of $473 million, an approximate 25.6% equity ownership stake. Around 19.6% is voting common stock and the balance non-voting preferred stock.

NHSc made its initial investment of $145 million in Aimmune in November 2016, followed by further investments of $30 million in February 2018, $98 million in November 2018 and $200 million early this year, the company said in a press release.

Under the terms of the merger agreement, Nestle S.A.’s wholly-owned subsidiary, Société des Produits Nestle S.A. (SPN), will commence a cash tender offer to acquire all outstanding shares of Aimmune common stock that are not already owned by NHSc for $34.50 per share in cash, representing a total enterprise value, including the shares of Aimmune held by NHSc, of about $2.6 billion.

The $34.50 per share acquisition price represents a 174% premium to Aimmune’s closing share price on August 28, 2020 of $12.60.

After this announcement, Aimmune Therapeutics shares closed 172% higher at $34.22 on Monday; the stock is up over 2% so far this year.

Executives’ comments

“This transaction brings together Nestlé’s nutritional science leadership with one of the most innovative companies in food allergy treatment,” said Nestlé Health Science CEO Greg Behar. “Together we will be able to offer a wide range of solutions that can transform the lives of people suffering from food allergies around the world.”

“The agreement with Nestlé Health Science recognizes the value created by years of commitment and dedication to our mission by the team at Aimmune. Delivering Palforzia, the world’s first treatment for food allergy, has been a game-changing proposition in the bio-pharmaceutical industry and is transformative for the lives of millions of people living with potentially life-threatening peanut allergy,” said Jayson Dallas, MD, President and Chief Executive Officer of Aimmune.

“This acquisition ensures a level of support for Palforzia and our pipeline that will further enhance their potential for patients around the world living with food allergies.”

Nestle stock forecast

Morgan Stanley gave a target price of CHF 110 with a high of CHF 125 under a bull-case scenario and CHF 80 under the worst-case scenario. Jefferies increased their stock price forecast to CHF 109 from CHF 94.

Other equity analysts also recently updated their stock outlook. JP Morgan raised their price target to CHF 123 from CHF 116, Barclays increased their price objective to CHF 120 from CHF 112 and UBS raised their target price to CHF 130 from CHF 114.

We think it is good to buy at the current level and target CHF 120 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Fifteen analysts forecast the average price in 12 months at $125.55 with a high forecast of $143.68 and a low forecast of $104.99. The average price target represents a 4.50% increase from the last price of $120.14. From those 15 analysts, ten rated “Buy”, four rated “Hold” and one rated “Sell”, according to Tipranks.

Analyst view

“We view Nestle as a core holding in European Food, with an attractive portfolio of leading global brands and a defensive growth profile vs. peers. We see continuation of improving returns as Nestle looks to manage its core portfolio and drive growth through margin-accretive categories such as Coffee, Pet Care and Nutrition,” said Richard Taylor, equity analyst at Morgan Stanley.

“Ongoing cost savings should support margin expansion of 40bps over the next 3 years. Strong FCF + ROIC improvement should drive a premium vs EU Food-HPC peers. Nestle currently trades at an 8% premium to large-cap peers on 2021e P/E,” he added.

Upside and Downside risks

Upside: 1) Superior execution and re-rating as growth accelerates. 2) Cost savings and improving mix resulting in better than expected margins – highlighted Morgan Stanley.

Downside: 1) Strengthening of CHF vs Nestle’s major currencies, particularly USD. 2) Higher than expected reinvestment or restructuring. 3) Greater competition in some of Nestle’s core businesses, such as Coffee, Pet Care and Nutrition.