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Nestle trims L’Oreal stake with $10 billion sale

(Source: supplied )

Nestle SA said on Tuesday it would cut its stake in L’Oreal to about 20 per cent by selling shares worth 8.9 billion euros ($10 billion) back to the French cosmetics brand, moving to reduce the weight of the beauty giant on its books for the first time in 7 years.

The Nescafe maker’s holding in the beauty giant has been subject of intense scrutiny over the years, and the Swiss company has maintained its interest was both financial and strategic, even when activist investor Third Point urged disposal in mid 2017. Since then, L’Oreal shares have more than doubled.

Seeking to reduce the weight of its L’Oreal holding while maintaining a level above 20 per cent, allowing it to consolidate the investment on accounts, Nestle approached L’Oreal two months ago, kicking off a flurry of negotiations that involved chairmen of both companies, according to a source with knowledge of negotiations.

Following the deal, Nestle said it would own 20.1 per cent of L’Oreal, down from 23.3 per cent previously. L’Oreal, meanwhile, would buy back shares representing 4 per cent of its capital and cancel them at the latest on Aug 29.

L’Oreal, which is paying 400 euros per share, said the deal will have an accretive effect on the company’s earnings per share of more than 4 per cent in a full year. The beauty company is paying with cash and debt.

As a result of the transaction, which is expected to close in the coming days, the Bettencourt Meyers family, will see their stake rise to 34.7 per cent from 33.3 per cent, but will not be required to launch a takeover offer, as normally required for passing ownership thresholds above one-third of the capital.

L’Oréal stock ended Tuesday up 3.96 per cent at 424.8 euros while Nestle gained 0.1 per cent to 121.9 Swiss francs.

The packaged foods maker also said its board had decided to buy back 20 billion Swiss francs ($21.6 billion) worth of its shares between 2022 and 2024, adding that it would adjust this program should it make sizable acquisitions.

Nestle said it would terminate its current share repurchase plan by the end of the year, having bought back shares for 12.7 billion Swiss francs or almost two-thirds of the program volume.

L’Oreal around four years ago underscored its readiness to buy Nestle’s 23 per cent stake if the Swiss shareholder was to sell it.

Nestle in October 2019 closed the sale of its skin health business for 10.2 billion Swiss francs, as the group moved to ditch underperforming businesses.

In 2014, Nestle reduced its holding from 31 per cent.

Centerview acted as lead adviser to L’Oreal for the transaction announced Tuesday.

  • Reporting by Mimosa Spencer and Gwénaëlle Barzic. Additional reporting by Praveen Paramasivam in Bengaluru; Editing by Ramakrishnan M. And Cynthia Osterman, of Reuters.

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