updated 12/16/2006 6:52:21 PM ET 2006-12-16T23:52:21

Nestle SA, the world’s biggest food and drink company, will buy the medical nutrition unit of pharmaceutical company Novartis for $2.5 billion, the companies said Thursday.

There had media reports that Nestle might also acquire Gerber Products, Novartis’ infant nutrition producer, but the deal does not include that unit.

The deal still needs to be approved by regulatory authorities but is expected to be completed during the second half of 2007, Nestle said in a statement.

“I am very pleased that this acquisition allows us to become a very strong player in the strategic core category of nutrition,” said Chairman and Chief Executive Peter Brabeck-Letmathe. “This is a very important step for the Nestle Group in its strategic transformation process to a nutrition, health and wellness company as it strengthens the core of our globally managed Nestle Nutrition business.”

Nestle shares were up 1 percent to at 434 Swiss francs ($360) in Zurich by midmorning. Shares of Novartis rose 0.6 percent to 70.50 Swiss francs ($58.43).

“Following our long-term strategy, this divestment continues to enhance our focus on health care,” Novartis Chairman and CEO Daniel Vasella commented in a statement, adding that it would strengthen the company’s financial position and strategic flexibility.

Nestle said the 2,000 Novartis employees currently working at the medical nutrition unit in Gland, Switzerland, will join the company, increasing its research and development capacity.

With expected sales of about $950 million, Novartis Medical Nutrition was the world number two in its field in 2006.

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