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Nestlé To Sell Its Shares in L'Oréal



Published February 11, 2014
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Nestlé To Sell Its Shares in L

It will be an amicable split. After four decades of a financial marriage that kept analysts buzzing for years, Nestlé announced today that it will begin selling its shares of L'Oréal back to the world's largest cosmetics maker. The two companies said Tuesday that Switzerland's Nestlé is selling 8% of L'Oréal back to the French cosmetics giant for €6.5 billion ($8.88 billion), the first step in a long-anticipated corporate decoupling that could culminate with the Swiss food giant exiting L'Oréal completely—maybe.


"This transaction represents a very positive strategic move for L'Oréal, its employees and its shareholders.
L'Oréal will focus exclusively on its cosmetics business and its 'Beauty for all' mission, its universalization strategy and its ambition to win one billion new consumers," said Jean-Paul Agon, chairman and chief executive officer of L'Oréal. "L'Oréal will indeed benefit from a very significant and reinforced presence from the founding Bettencourt Meyers family, who will continue to fully support the company as it always did in the past. L'Oréal will also continue to benefit from the support of Nestlé, which has always been a loyal and constructive shareholder."


According to Agon, all of L'Oréal's shareholders will benefit from this transaction with an accretive impact on the company's earnings, resulting from the buyback and subsequent cancellation of L'Oréal shares held by Nestlé." 

 

Under terms of the agreement, L'Oréal will buy 48.5 million of its own shares (8% of its share capital) from Nestlé. This buyback will be financed:

• Partially through the disposal by L'Oréal to Nestlé of its 50% stake in Swiss dermatology pharmaceuticals company Galderma (a 50/50 joint venture between L'Oréal and Nestlé) for an enterprise value of 3.1 billion euros (2.6 billion euros of equity value), paid by Nestlé in L'Oréal shares (21.2 million shares)


• For the remainder, corresponding to 27.3 million L'Oréal shares held by Nestlé, in cash for an amount of 3.4 billion euros


Following the transaction, Nestlé's stake in L'Oréal will be reduced from 29.4% to 23.29% of the share capital and the Bettencourt Meyers family's stake in L'Oréal will increase from 30.6% to 33.31%. The deal is expected to close by the end of the first quarter.


Under terms of the agreement, Nestlé will acquire a 50% stake in Galderma, one of L'Oréal's skin care brands. Nestlé will use Galderma to build Nestlé Skin Health S.A. the new wholly-owned subsidiary will offer a broad range of innovative and scientifically-proven products, responding to consumer needs and building on our strengths as a science-based nutrition, health and wellness company, according to Nestlé.


"With this proposed acquisition of 50% of Galderma, Nestlé will pursue its strategic development in Nutrition, Health, and Wellness, by expanding its activities to medical skin treatments," said Peter Brabeck-Letmathe, chairman, Nestlé.  "In this respect, Nestlé will create a new centre of activities in this area, through a new entity: Nestlé Skin Health SA. Galderma will be the foundation of this entity which will be run by Galderma's management.


As a wholly owned subsidiary of Nestlé, Galderma will have all the required means for its development which will benefit to the company, its employees as well as all other stakeholders. Following the decrease of its stake in L'Oréal, Nestlé will continue to support the development of L'Oréal as in the past 40 years. In this context, Nestlé will continue to act in concert with the Bettencourt Meyers family and the existing agreements, adapted to the new situation, will remain in place."



Nestlé and the Bettencourt clan have ruled L'Oréal with nearly equal shares since 1974, when the family sought an outside investor as it feared a nationalization of the company. L'Oréal meanwhile, owns nearly 9% of Sanofi —representing a three-way, cross-shareholding deal unique in its complexity even by European standards.
 

 


Nestlé, the maker of Nescafé and KitKat, three years ago signaled a desire to potentially start to go its own way. No announcement was expected before the end of April, however, when an agreement between Nestlé and the Bettencourts, heirs of L'Oréal's founder, expires.


Yet a big element of suspense still hangs over what Nestlé will do with its remaining 23% stake in L'Oréal. For now, Nestlé said it is staying put. "This is not a sign of disengagement or a strategic change," Brabeck-Letmathe told reporters in Paris.


"It's a strong step for now," said Agon said in an interview. "We can speculate on what will happen in the years to come."

 

 



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