Nestle, the world's largest food and beverage company, said it will merge its U.S. ice cream business with

Dreyer's Grand

(DRYR)

, giving Nestle majority control of the ice cream maker and increasing its prescence in the U.S. ice cream market, woth about $25 billion annually.

Nestle plans to trade its U.S. ice cream business to Dreyer's for 55 million Dreyer's shares, bringing its stake in the Oakland, CA-based company up to 67%.

Dreyer's will continue as a publicly traded entity until at least 2006. At that time, the transaction also gives Dreyer's shareholders the right to sell their stock to Nestle for $83 a share. Nestle will be able to exercise its call option on any unpurchased Dreyer's stock beginning in 2007, giving it the right to buy the common stock for $88 a share.

In a press release, Dreyer's said, "This alliance with Nestle, including the addition of the Haagen-Dazs and Drumstick brands, enables us to retain our entrepreneurial culture and sprit, and continue our commitment to brand building, innovation, and world class direct store delivery."

Shares of Dreyer's were climbing 58% to $67.54 in early trading on the news after closing at $42.79 Friday.