Nestlé SA said on Tuesday it would cut its stake in L’Oréal to about 20 percent by selling shares worth €8.9 billion ($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 seven years.
The Nescafe maker’s holding in the beauty giant has been the 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’Oréal shares have more than doubled.
Seeking to reduce the weight of its L’Oréal holding while maintaining a level above 20 percent, allowing it to consolidate the investment on accounts, Nestlé approached L’Oréal 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, Nestlé said it would own 20.1 percent of L’Oréal, down from 23.3 percent previously. L’Oréal, meanwhile, would buy back shares representing 4 percent of its capital and cancel them at the latest on Aug. 29.
L’Oréal, which is paying €400 per share, said the deal will have an accretive effect on the company’s earnings per share of more than 4 percent 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 percent from 33.3 percent, 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 percent at €424.8 while Nestlé gained 0.1 percent 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 programme should it make sizeable acquisitions.
Nestlé 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 programme volume.
L’Oréal around four years ago underscored its readiness to buy Nestlé’s 23 percent stake if the Swiss shareholder was to sell it.
Nestlé 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, Nestlé reduced its holding from 31 percent.
Centerview acted as lead adviser to L’Oréal for the transaction announced Tuesday.
(By Gwénaëlle Barzic and Mimosa Spencer; additional reporting by Praveen Paramasivam in Bengaluru; editing by Ramakrishnan M. And Cynthia Osterman)
L’Oréal posted better-than-expected revenue growth for the third quarter.