Published: August 9 2010 09:43 | Last updated: August 9 2010 23:34

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The world’s biggest food group is about to become one of the world’s richest. Nestlé will pocket $28bn from the sale of its stake in Alcon, the US eyecare company, in the next few months. That haul, equivalent to approaching three years’ net income, will give the maker of Kit Kats a cash pile to rival compulsive tech-sector hoarders such as Google.
Unlike technology groups, the Swiss company does not want to become a financial fortress. It expects net debt to return quickly to the end-2009 level. One way to do that is by making big acquisitions, but chief executive Paul Bulcke favours a modest annual acquisition budget; the last big purchase was Gerber in 2007, for $5.5bn. Speculation that Nestlé will lift its 30 per cent stake in L’Oréal, the French cosmetics group, looks misguided.

Nor can much of the Alcon cash be deployed in the normal course of business – not for a company that threw off about SFr9bn of free cash flow after dividends last year. Instead, prepare for the advent of the $170bn chocolatier-cum-ATM: a listed company that disgorges cash.
Nestlé returned SFr12bn to shareholders last year in buy-backs and dividends. It has lifted its dividend payment every year since 1997 and avidly buys back shares: a new SFr10bn programme kicked off following the completion of a SFr25bn buy-back.
But Nestlé should be able to find more good uses for at least some of its cash. It makes products that are both cheap and covetable (some might say addictive) across the globe, but lags behind rival Unilever in emerging markets, which contributed less than one-third of sales last year. Sales in Latin America and the Caribbean were flat.
Nestlé delivers an impressive 16 per cent return on invested capital, including goodwill. That beats the peer group and, presumably, most of those receiving the dividend bounty.
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