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Nestle Buys Novartis Medical Nutrition Unit for $2.5 Billion

Swiss pharmaceutical group Novartis announced Thursday it is selling its medical food unit to Nestle for $2.525 billion.

The acquisition will make Nestle the second largest operator in the medical food sector but the deal does not include Novartis' Gerber baby food division. Reports of a possible deal between the two Swiss companies surfaced last month, with some speculation that a deal involving Gerber could command as much as $5 billion.

Nestle said the acquisition will not have any significant impact on the company’s earnings in the short-term but will aid the company’s shift to higher margin, value-added food products, Reuters reported.

"This is the medical nutrition part of Novartis nutrition -- foodstuffs destined for people who are hospitalised and have specific nutritional needs and often need to be fed through a tube," said a Nestle spokesman to Reuters.

Novartis said it will use the funds generated by the deal to bolster its financial position and provide additional strategic flexibility.

Analysts' views on the price were mixed and analysts at Swiss private bank Wegelin pointed out that up to $3 billion had been suggested but some traders saying they had only expected $2.35 billion. Nestle recently purchased U.S. food company Jenny Craig for $600 million.

Shares in Novartis rose 0.5% and Nestle was up 0.8% in early trading.