L’Oreal keen to buy Nestle’s stake in itself
PARIS: L’Oreal SA yesterday signalled its readiness to buy Nestle SA’s 23% stake in the world’s biggest cosmetics firm, which along with strong results lifted the French company’s shares.
L’Oreal said it could finance a purchase of the holding, which is now worth around €22.3 billion ($27.4 billion), with cash, by selling its stake in French pharmaceutical group Sanofi SA or through borrowing.
“If Nestle one day wants to sell, we are ready,” chairman and chief executive Jean-Paul Agon said after L’Oreal released fourth-quarter earnings.
Billionaire Liliane Bettencourt’s death in September has focused attention on how L’Oreal’s founding family and its major shareholder Swiss food group Nestle would manage their stakes.
Investor Daniel Loeb, founder of hedge fund Third Point, has pushed for Nestle to sell its L’Oreal stake among his demands for the Swiss firm to speed a strategy overhaul.
“We have €1.8 billion in cash, we have the Sanofi stake. We are also a very serious and loyal and active shareholder in Sanofi, but in case we will be ready and I’m sure if it was not enough, we have many love letters from banks that have said that they would love to lend us some money.” he added. Nestle and Sanofi declined to comment. “Scarcely a surprise, but this may excite some: an acquisition of the stake by L’Oreal, part-funded by a sale of its own Sanofi stake would be circa 10% accretive,” Investec Securities analysts said in a note.
At today’s stock price, L’Oreal’s 9% stake in Sanofi is worth more than €7 billion, according to Reuters data.
L’Oreal entered the pharmaceuticals business in 1973 with the purchase of Synthelabo. This was later merged with Elf Aquitaine’s drugs business in the late 1990s, with L’Oreal retaining a stake in the enlarged Sanofi group.
“We see this as no change to the status quo from a L’Oreal perspective. Nor do we expect an imminent about-turn from Nestle, which reiterated its commitment to the L’Oreal holding in September,” Barclays analysts wrote.
Overall, L’Oreal’s sales rose by a betterthan-expected 5.5% in the fourth quarter on a comparable basis, and revenues for the whole of 2017 reached €26 billion, up 4.8% like-forlike, compared to 4.7% growth in 2016.
The share of products sold online increased, reaching 7.7% of all sales at yearend, up from 5% two years earlier. Operating income grew 3% in 2017, to €4.7 billion.
L’Oreal shares closed down 2.16% at €171.8 on Thursday before it released earnings. They have fallen 7.1% so far this year, after rising 6.7% in 2017.
Many of L’Oreal’s peers have also posted better-than-expected revenues or profits for the last three months of 2017, including Clinique owner Estee Lauder and US cosmetics producer Coty Inc.