VEVEY, SWITZERLAND — Nestle S.A. has agreed to acquire Kraft Foods Inc.’s frozen pizza business in the United States and Canada for $3.7 billion.

The acquisition includes the DiGiorno, Tombstone, California Pizza Kitchen, Jack’s and Delissio brands, two Wisconsin manufacturing facilities as well as an option to assume leases for pizza depots and delivery trucks.

The acquisition would elevate Nestle to one of the largest, if not the single largest, player in the frozen segment of the U.S. grain-based foods market. In 2002, Nestle spent $2.6 billion to acquire Chef America, Inc., the maker of frozen products sold under the Hot Pockets brand. Since 1973, the company has owned the Stouffer’s frozen foods brand.

“This frozen pizza business greatly enhances Nestle’s frozen food activities in North America, bringing together a selection of great U.S. and Canadian brands, industry-leading R.&D. and excellent route-to-market capabilities, which complement our existing ice cream direct-store-delivery,” said Paul Bulcke, chief executive officer at Nestle.

Nestle said the acquisition brings leadership in the frozen pizza category where the company only had a minor presence until now, and is a natural fit with Nestle’s focus on delivering convenient, premium, frozen foods.

Beyond frozen grain-based foods, the company also is one of the largest players in the U.S. ice cream market, principally with its Dreyer’s brand.

While a natural fit with its frozen foods franchise, the acquisition marks a departure from the company’s recent emphasis on acquisitions in the health and wellness arena.

The company acquired Jenny Craig in 2006 and Gerber and Novartis Medical Nutrition in 2007.
Kraft said the sale would allow it to focus on other segments of its business. The company is in the process of pursuing a hostile takeover of Cadbury P.L.C.

“Selling this business now not only delivers an attractive return for our shareholders but enables us to better focus our resources on priority global brands and categories,” said Irene Rosenfeld, chairman and c.e.o. at Northfield, Ill.-based Kraft. “Nestle is well-positioned to continue building these powerhouse pizza brands given its strength in frozen foods.”

Kraft estimates its pizza business generated net revenue of $1.6 billion in 2009.