July 7, 2022

World renowned, Swiss packaged food brand Nestle SA announced to have cut down its stake in in L’Oreal to about 20%. The former sold shares worth 8.9 billion euros ($10 billion) back to the French cosmetics brand.

Nestlé’s upcoming deal comes as it is looking to reduce the weight of the beauty company on its books for the first time in 7 years.

According to the Nescafe maker, its holding in the L’Oreal has been subject of intense scrutiny over the years. Nestle has continued to maintain its interest both strategically and financially, even when Third Point, its activist investor had urged the disposal of the stakes in mid-2017.

About the deal –

• Nestle in order to reduce the weight of its L’Oreal holding while maintaining a level above 20%, had approached the beauty company two months ago, whilst allowing it to consolidate the investment on accounts.
• Nestle then began a chain of negotiations that involved chairmen of both companies,.
• Nestle mentioned that after the deal falls through, it would own 20.1% of L’Oreal, down from 23.3% previously.
• In the meantime, L’Oreal has mentioned to buy back shares that represent 4% of its capital and cancel the same at the latest next year on Aug. 29.
• L’Oreal will be paying 400 euros per share that Nestle plans to sell off.
• The latest deal is expected to have an accretive effect on the beauty giant’s earnings per share of more than 4% in a full year.
• L’Oreal will be paying with cash and debt.

The Bettencourt Meyers family as a result of the transaction will see their stake rise to 34.7% from 33.3%.

According to reports, between 2022 and 2024 Nestle board will also buy back 20 billion Swiss francs ($21.6 billion) worth of its shares from the beauty giant. By the end of the year, it would also terminate its current share repurchase plan, having bought back shares for 12.7 billion Swiss francs or almost two-thirds of the program volume.

Around four years ago L’Oreal underscored its readiness to buy Nestle’s 23% stake if the latter had plans to sell it.