Nestlé SA’s retreat from skincare raises questions

NESTLÉ SA’s likely retreat from skincare sharpens questions about the company’s broader involvement in cosmetics and the future of a prized asset that many investors want to see sold: a $30 billion (R432bn) stake in L’Oreal SA.

Nestlé said yesterday that it would consider new owners for its dermatological business, a unit with $2.8 billion in annual revenue that chief executive Mark Schneider said may no longer fit with the company’s overall strategy of focusing on products such as coffee, water and pet food.

That led analysts such as Andreas von Arx at Baader Helvea to speculate that a long-awaited divestment of L’Oreal may come up for discussion. Schneider is stepping up the pace of change, having also announced a bond sale and the divestment of an insurance business in a flurry of deals this week. Breaking ties with the French cosmetics giant is one of the main remaining issues that activist investor Dan Loeb has been lobbying Nestlé about.

“We see this as a symbol of willingness to slay sacred cows,” wrote Martin Deboo of Jefferies. Schneider is making a “highly symbolic break” from his predecessors.

Facing pressure from Loeb to focus on its mainstays, Nestlé has bought and sold businesses at an accelerated pace in the past year. Selling the dermatological brands means dismantling a business that former chief executive Paul Bulcke touted as a promising new avenue of growth.

Analysts are divided on how much Nestlé could get from the skin health unit. Deboo estimates 4 billion francs (R60.1bn), saying the few plausible options include a sale to L’Oreal or a leveraged buyout.

Alain Oberhuber, an analyst at MainFirst, estimated that it could fetch as much as 8 billion francs, as the business may appeal to Johnson & Johnson or Japan’s Shiseido Co.

Schneider has called Nestlé’s stake in L’Oreal a “fabulous investment”, and has resisted calls to announce a divestment. The stock has gained 12 percent in the past year, outperforming Nestlé’s shares.

Nestlé Skin Health makes products ranging from acne treatments to injectable skin fillers that compete with Botox.

The unit has been a weak spot for the company due to generic competition, and is cutting hundreds of jobs and closing sites. – Bloomberg