Tue. Jan 18th, 2022

Nestlé is selling back part of its stake in L’Oréal for almost €9bn, scaling down a decades-old relationship between the world’s largest food company and the cosmetics maker.

The Swiss group said on Wednesday it would sell back €8.9bn of shares to the French company, leaving Nestlé with a 20.1 per cent holding in L’Oréal and two seats on its board.

The relationship between the two companies has been closely watched, especially after activist investor Third Point unsuccessfully urged Nestlé in 2017 to sell its stake in L’Oréal.

The transaction was pushed forward by Nestlé, according to a person familiar with the situation. It is the second time Nestlé has moved to scale back its holdings, after selling a €6bn stake to the cosmetics group in 2014.

The deal comes as L’Oréal shares trade near all-time highs after outperforming the broader beauty market. It is the latest bold move by Nestlé chief executive Mark Schneider, who has reshaped the company’s portfolio by selling off divisions such as skincare and US bottled water, while pushing into consumer health, petcare and medical nutrition.

Nestlé will use the resulting cash to carry out an expanded share buyback programme, repurchasing SFr20bn of its own shares in 2022-24, though this could be adjusted in the event of large acquisitions. L’Oréal is paying €400 a share in the transaction, a discount of 5.8 per cent to Tuesday’s closing price, for what amounts to 4 per cent of its share capital. It will cancel the shares.

The stake dates back to 1974, when Nestlé first bought into L’Oréal at the request of Liliane Bettencourt, the daughter of L’Oréal founder Eugène Schueller, with the aim of preventing a potential nationalisation of the company by France’s Socialists.

The holding came under scrutiny in 2017 after the death of Bettencourt, which analysts said could be a catalyst for a shake-up of L’Oréal’s share capital. The following year L’Oréal’s then chief executive, Jean-Paul Agon, said that if Nestlé wanted to sell its stake, L’Oréal would be a buyer and “we have what it takes” to do so.

L’Oréal said that following the latest transaction, the stake in the cosmetics group held by the Bettencourt Meyers family would increase from 33.3 per cent to 34.7 per cent, but that France’s financial regulator had agreed to waive the normal requirement for a takeover offer once a given shareholder owns more than a third of a public company. Nestlé’s stake falls from 23.3 per cent.

Shares in Nestlé, which makes brands from Purina pet food to Nescafé, were up 1.5 per cent to SFr123.70 in morning trading, while shares in L’Oréal rose 0.6 per cent to €427.35.

Martin Deboo, analyst at Jefferies, said the transaction “reduces Nestlé’s exposure to L’Oréal, which at [about 16 per cent] of its market cap pre-transaction was becoming troublingly high. It makes L’Oréal’s balance sheet somewhat more efficient, while keeping ownership ‘in the family’.

“It puts another tick on the scoresheet of Mark Schneider’s seemingly inexorable transformation programme at Nestlé. The question on our minds . . . is whether this is merely a one-off, or the start of a phased exit from L’Oréal by Nestlé, unfolding over the coming years.”

Additional reporting by Leila Abboud in Paris

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