Nestlé Opens Door To L'Oreal Stake Sale As Growth Slumps
Nestle SA opened the door to a possible sale of its L’Oreal SA stake in a move that would help Chief Executive Officer Mark Schneider sharpen the Swiss giant’s portfolio after the weakest sales growth in more than 20 years.
The Nespresso owner said it won’t increase its 23 percent investment in the French cosmetics maker and will let a shareholder pact with the Bettencourt family lapse.
Nestle dropped as much as 2.8 percent in early Zurich trading, while L’Oreal rose as much as 0.7 percent in Paris.
“We remain committed to the company that has given us very good returns over the years,” Nestle said, adding it wants to keep all options open regarding L’Oreal while maintaining a constructive relations with the Bettencourts.
The French company’s sales growth is stronger than Nestle’s, providing a helpful tailwind amid bleak prospects for mass-market food and beverage brands.
Nestle’s update on the stake came as the company said revenue rose 2.4 percent in 2017 on an organic basis, below analyst expectations. Schneider is aiming to lift that to as much as 4 percent this year. Speaking on Bloomberg TV, he said he’s “somewhat” optimistic for pricing and volume growth for 2018 and beyond.
Since taking over about a year ago, the CEO has stepped up merger-and-acquisition activity, buying Canadian dietary supplements maker Atrium Innovations for $2.3 billion and jettisoning Nestle’s ailing U.S. chocolate business.
Nestle said it plans to continue “active portfolio management” in a disciplined manner.
“The sweet spot is in small to mid-sized deals, but we don’t want to rule out anything,” Schneider told reporters in Vevey, Switzerland.
Schneider also accelerated Nestle’s share buyback program in response to activist Dan Loeb taking a $3.5 billion position in the company. On Thursday, Nestle said it may sell a life-insurance business that it acquired when it bought the Gerber baby food brand in 2007. The unit had revenue of 840 million francs ($906 million) last year.
Loeb has been pressuring Nestle to consider selling its stake in L’Oreal, an investment that dates back to 1974. Such a move could prompt a broader realignment of shareholdings in some of Europe’s biggest companies, including French drugmaker Sanofi, in which L’Oreal holds a stake.
L’Oreal said last week that it’s ready to buy out Nestle’s holding and has the resources to do it. Under the shareholder agreement, neither the Swiss company nor the Bettencourt family are permitted to increase their stakes in the cosmetics maker until March 21 -- six months after the death of L’Oreal matriarch Liliane Bettencourt.
A sale of the stake is not imminent, according to Robert Waldschmidt, an analyst at Liberum. “A spin-off of the stake to shareholders is as likely as an outright sale without the precursor of large-scale M&A,” he wrote.
Schneider, the first outsider to run Nestle in almost a century, beat his goal of improving the underlying trading operating margin by at least 0.2 percentage points, excluding currency shifts. The margin rose 0.5 percentage points.