April 9/Western Europe Food and Drinks Insights -- Swiss food and drink giant Nestlé has agreed to sell its shares in U.S. eyecare firm Alcon to multinational pharmaceutical company Novartis for $39 billion. This massive sale gives the firm cash to spend on acquisitions in the health, nutrition and well-being sectors that are now the firm's stated priorities. This extra finance means that Nestlé is likely to smash its self-imposed $2 billion annual acquisition budget in the coming year; however, where the money will been spent is open to speculation.

Nestlé has transformed itself over the past five years from a bulk processor of basic foods, such as milk and cereal, into a firm focused on high-tech, healthy foods. The firm insightfully predicted the rise in the healthy eating and functional food categories and has carefully reshaped its product portfolio to cater to these trends. Not only has this approach boosted sales but it has also shielded the firm from rising commodity costs, which have hit margins at many of the firm's selling products with less added value.

Many analysts are currently talking up the prospect of Nestlé using the Alcon money to launch a takeover of French cosmetics firm L'Oréal, in which it currently holds a 29% stake. This speculation has been partly prompted by the fact that a shareholder agreement that prevents the Bettencourt family selling their 30% stake in L'Oréal expires in April 2009. This speculation caused L'Oréal's share price to spike upwards by 5%; however, in BMI's opinion L'Oréal does not fit neatly with Nestlé's current strategy and is unlikely to be the motivating factor behind the sale of its shares in Alcon.