13 Feb 2014 Nestlé sells €6bn L’Oréal stake back to cosmetics group
Nestlé is stepping back from its 40-year relationship with L’Oréal by selling a €6-bn stake in the cosmetics maker back to the French group. One of the highlights of the deal for Nestle is its commitment to grow its dermatology business as part of its drive to focus on health, wellness and nutrition.
The Swiss group’s relationship with L’Oréal was formed at the behest of Liliane Bettencourt, L’Oréal’s biggest shareholder and the world’s richest woman, in 1974 due to fears that France’s Socialists would nationalise the company her father founded in 1909.
The stake has proved financially lucrative for Nestlé, the world’s largest food group by sales, yielding a return of more than 15 per cent a year on average. The decision to sell, announced jointly by the two companies on Tuesday, will see Nestlé’s investment fall from 29.4 per cent to 23.3 per cent.
Peter Brabeck, Nestlé’s chairman, stressed that his company was not pulling away from the accord, which has bound Nestlé’s fortunes with those of 91-year-old Bettencourt.
“It’s not a sign of disengagement or a strategic change and we’re integral to L’Oréal’s future,” he said at a press conference. “We are in here for the long haul.”
But speculation over Nestlé’s long-term interests has been mounting ever since Brabeck made it clear last year that he would not renew a clause in an agreement with the Bettencourts that forbids each of the parties from selling their cross-holdings without first offering them to the other. That clause expires in April.
Jean-Paul Agon, L’Oréal’s chairman and chief executive, told the FT that the deal was “great . . . it’s hard to find a deal that is good for everyone – this is one of them”…..
Financial Times: Read the full article
Nestlé and L’Oréal: Skin deep
Comment from The Economist….
THE most interesting thing about Nestlé selling part of its stake in L’Oréal back to the cosmetics company is what it got in return: full control of Galderma, a Swiss maker of skin treatments. Known for Kit Kat chocolate bars and Nespresso coffee capsules, Nestlé wants to be a provider of health as well as nutrition. With the L’Oréal deal it is becoming a food-pharmaceutical hybrid, a model that others are likely to follow as consumers age and fret more about their health.
The sale does not rupture a cosy 40-year-partnership between Nestlé and the Bettencourt family in France, which together own 60% of L’Oréal’s shares. Nestlé is selling an 8% stake in return for half of Galderma, worth €3.1 billion ($4.2 billion), as well as €3.4 billion in cash (the shares that Nestlé is selling to L’Oreal are to be cancelled).
Analysts had wondered whether Nestlé would get rid of its entire 29% stake in L’Oréal, which has been lucrative but has little to do with the Swiss food company’s main business. Some thought it might sell to an outsider, which would have been awkward for the Bettencourts. L’Oréal’s right of first refusal expires in April.
But if that is Nestlé’s intention there is little sign of it. Its chairman, Peter Brabeck-Letmathe, described Nestlé’s remaining substantial stake as “strategic” and said “we are in here for the long haul.” So the Bettencourts have little to worry about, for the moment at least. Nestlé will use part of the cash to please shareholders by buying back some of its own shares.
Galderma, which makes treatments for conditions such as acne, psoriasis and skin cancer, will become the core of a new venture, Nestlé Skin Science. This will also house the company’s infant skin-care business, Bübchen, and will presumably add other epidermal enterprises as time goes on.
It will join a family of Nestlé companies that reek more of the laboratory than of the kitchen. Nestlé Health Science, founded in 2011, aims to “pioneer” products that straddle nutrition and medicine, sometimes called “nutraceuticals”. Some of the companies it has acquired make foods that combat depression and alleviate kidney disease.
In 2012 Nestlé outbid Danone, a French producer of yogurt and water, to buy the baby-food business of Pfizer. Nestlé’s “health and nutrition” division had revenues of SFr9 billion ($10 billion) in the first three quarters of last year, about 13% of total sales.
It is not the only big food company on a health binge. Danone’s Activia yogurt is marketed as a cross between a treat and a therapy (though in Europe it is not allowed to make health claims for its “probiotic” cultures). PepsiCo’s quest to cut the sugar content of its product portfolio included an acquisition in 2010 of Russia’s Wimm-Bill-Dann Foods, a manufacturer of yogurt and other bone-building dairy products. Pepsi Special, which is sold in Japan, supposedly reduces fat absorption.
Though Nestlé is edging away from cosmetics, it is still keen on “Nutricosmetics”, points out Sanford C Bernstein, an equity-research firm. Innéov, a joint venture with L’Oréal that makes hair- and skin-beautifying pills, is unaffected by Tuesday’s deal.