The bitter battle between Nestle and the French CGT union over the group's rationalisation plans for Perrier has resulted in the Swiss group threatening to sell its iconic French water brand. Ben Cooper assesses whether Nestle is serious about the threat or just talking tough.

In the past few months a war of attrition has been conducted between Nestle and the CGT union in France over its plans to rationalise the workforce at its French bottled water subsidiary, Perrier. There is nothing particularly unusual about a corporation going toe-to-toe with a French union but Nestle has shown its exasperation with the events by threatening simply to sell Perrier and be done with it.

Last week, Nestle's CEO, Peter Brabeck, said in an interview with CNBC Europe that "the sale of Perrier is one strategic option." This was the clearest indication to date that the company was serious about the threat. Late last month, Nestle scrapped its rationalisation plans for its French mineral water business in the face of union opposition and said it would announce its intentions for the company in September.

With this Nestle has put the ball back in the CGT's court and has signalled that its patience has run out. In a further development, the CGT has this week asked the local authorities in the Gard region to convene talks aimed at finding a mutually acceptable solution to its dispute with the Swiss group.

At first, many would have dismissed Nestle's threat to sell Perrier as tough talk on the part of the Swiss giant. But as the months have gone by and Nestle has repeated its threat, it is now being viewed in many quarters as more than posturing. Unless Nestle is allowed to address what it sees as intolerable inefficiencies at Perrier it really will view the brand - an iconic presence in the water market and certainly one of Nestle's flagships - as expendable.

"I would have thought that they would be very reluctant to lose a flagship brand but ultimately if the losses become too great and the process is too intransigent and inflexible they may feel it is the only way," one analyst told just-drinks.

Nestle has been at odds with the CGT since November 2003, when the Swiss company announced changes to employment practices, including plans for early retirement. The union, which represents over 80% of the workforce at the Perrier plant in Vergeze, has opposed the changes and under France's stringent labour-protection legislation is in a strong negotiating position.

In March, Nestle had dismissed reports in French newspapers that it was planning to sell Perrier but said then that in order to improve profitability in its French mineral waters business it would have to cut around 1,000 jobs. At the time, Peter Brabeck, said "there's no reason why it should take 4,800 employees in France to produce 1 billion litres of mineral water when it takes just 1,800 people in Italy to produce the same amount."

The dispute has continued, with Nestle periodically intimating that a sale was being considered. Underlining that institutions are taking Nestle at its word, as early as mid-June, interest from possible bidders was emerging, including reported interest from the investment bank. BNP Paribas.

But when it comes to the crunch, would Perrier really be prepared to part company with such a prominent and well-known brand? Informed opinion seems to suggest that the group holds no huge romantic attachment to Perrier and in volume terms the brand is not big enough to raise questions regarding critical mass.

"It's no longer a single jewel in a crown," an analyst said. "It would definitely be a sad loss and difficult to replace but they do have San Pellegrino." Given Brabeck's comments regarding the comparison between French and Italian labour cost-efficiency, the reference to San Pellegrino would seem particularly apposite.

If Nestle did decide to sell Perrier, there would, as has already been shown by press reports during the past few months, be no shortage of interested buyers. However, it has been suggested that another big international consumer goods group would experience precisely the same problems with Perrier as Nestle is finding. Analysts have also commented that a sale to a drinks industry buyer would be problematic because of regulatory factors and some believe a financial investor may be more likely.

In any event, a company with a lower profile may, it has been suggested, make more headway in tackling Perrier's labour problems. Certainly, Nestle's problems during the past nine months will make any major player think twice about moving in, in spite of Perrier's undoubted star quality and global recognition.