Aquagold International Inc (AQUI)

[Bull Trader]

Nestlé all bottled up in a bubbling local controversy
By Paul Betts

(I think any information regarding Nestle - one of Aquagold's potential competitors - is worth noting)


Published: January 15 2008 02:00 | Last updated: January 15 2008 02:00

When Nestlé acquired Perrier for around €2bn ($2.97bn) in 1992, the Swiss food multinational thought it had pulled off quite a coup. After an epic battle with Italy's Agnelli family, Nestlé had finally taken control of the world's most famous sparkling water.

True, Perrier was not in good shape at the time. A couple of years earlier, it was forced to make a massive recall of some 280m bottles after traces of benzene were found in its water. That incident shattered its image, cost the company about €150m, and opened the door to Nestlé's takeover.

But the Swiss were confident their global scale and management savoir-faire would quickly help revive the French company and add some extra fizz to its expanding portfolio of international spring water brands. Unfortunately, from the beginning, Nestlé found itself caught in a classic confrontation with old-school unions and staff used to dealing with a paternalistic French owner and unhappy with the new Swiss owner's multinational culture.

After a long string of disputes, Nestlé finally read the riot act four years ago when chairman Peter Brabeck warned the unions and Perrier employees he was losing patience. The multinational also hinted it could consider moving production elsewhere - to the Czech Republic, for example - or indeed sell the business if the unions and the workforce refused job cuts and other steps to improve Perrier's productivity.

Following Mr Brabeck's outburst, the two sides have made efforts to improve Perrier's operations, but relations have nonetheless remained tense. The unions, workers and local administration at Vergèze in southern France, where Perrier is based, have continued to worry about Nestlé's threat to move production elsewhere. So to leave nothing to chance, they have decided to rename the famous spring water Source Perrier-les-Bouillens rather than simply Perrier.

Under this name, Nestlé would be unable to market spring water produced in another country, or indeed another French region, with the Perrier label, since it would now incorporate the geographical denomination of the actual spring - Les Bouillens - where the famous fizzy water is extracted. Perrier itself is named after Louis Perrier, a local doctor, who first exploited the spring in 1898 before selling it to Sir St John Harmsworth, the brother of Daily Mail founder Viscount Northcliffe. The English aristocrat subsequently sold the spring to a French stockbroker before Nestlé eventually absorbed it.

The Swiss immediately challenged the name change in the courts but the judges have on two occasions now - the latest was on Friday - ruled in favour of the local administration. Nestlé intends to appeal against the latest ruling, which would continue to frustrate its efforts to restructure Perrier and make maximum use of its famous brand name. Yet should the locals of Vergèze continue to stymie the ambitions of the Swiss multinational, Perrier would definitely become one of the worst investments Nestlé has ever made in its own long history.

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Copyright The Financial Times Limited 2008
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