• The New York Times , Thursday, April 12, 2007 11:15 AM

After a long courtship, Nestlé is buying baby-food giant Gerber for more than $5 billion from Novartis, which has been selling businesses unrelated to its core healthcare products.

Nestlé already has a huge infant-nutrition business in Europe, Asia and Latin America, but Gerber dominates the $900-million-a-year baby food business in the U.S. It controls 81% of the market. Gerber has struggled to diversify into other areas, including apparel, food for toddlers and life insurance. Nestlé already has a stake in the $2-billion-a-year market in America for infant formula; it owns Good Start infant formulas.

While the baby-food business generates lots of cash and has tremendous brand loyalty, growth is hard because of stagnant birth rates, says Prudential Equity Group analyst John McMillan. It will probably try to expand the Gerber business by fortifying baby food with antioxidants or other beneficial ingredients, in much the same way that yogurt is being fortified with beneficial bacteria.

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