Nestle selling 22.3m shares in L’Oreal for a total of €8.9b

ZURICH: Nestle SA is selling part of its stake in L’Oreal SA back to the cosmetics maker for €8.9 billion, scaling back a more than four-decade link between two of Europe’s biggest consumergoods companies.

The maker of Nespresso coffee and Purina pet food will own 20.1 per cent of the French maker of shampoos and lipsticks after the sale of 22.3 million shares for €400 each. That’s down from 23.3 per cent at the end of last year.

The two companies have been locked in a partnership since 1974, a protective move at the time to shield L’Oreal from possible French nationalisation. The sale of part of its stake follows years of speculation that Nestle would cut its investment as chief executive officer Mark Schneider overhauls the world’s largest food company.

The move is good for both companies because it reduces Nestle’s exposure to L’Oreal that had become “troublingly high” at about 16 per cent of its market capitalisation, according to Martin Deboo, an analyst at Jefferies.

And L’Oreal got to keep ownership in the family, he added.

“It puts another tick on the score sheet of Schneider’s seemingly inexorable transformation programme at Nestle,” Deboo wrote in a note after the announcement was made late on Tuesday.

“The question on our minds is whether this is merely a one-off, or the start of a phased exit from L’Oreal by Nestle, unfolding over the coming years.”

It’s the first time Nestle has reduced its holding since 2014, when it disposed of an eight per cent stake for €6 billion. For

L’Oreal, it’s the company’s largest-ever transaction. It plans to cancel the repurchased shares.

Schneider has made bold moves since taking the helm in 2017, selling lagging businesses such as the United States confectionery unit and mass-market bottled-water brands, as well as Nestle’s skincare business.

Instead, he’s focused on fastergrowing areas like coffee, petcare and consumer health. His US$7.15 billion deal for the rights to sell Starbucks coffee products in supermarkets, restaurants and catering operations has boosted coffee sales while Nestle has also pushed further into vitamins and supplements.

Nestle remained “fully supportive” of L’Oreal’s value creation strategy, according to a statement, and would retain its two positions on its board.

L’Oreal’s other main investor is the Bettencourt Meyers family, which is among the wealthiest in France.

The family’s stake would be raised to 34.7 per cent from 33.3 per cent as a result of the transaction, according to a statement from L’Oreal.