L’Oréal’s Jean-Paul Agon Clarifies Nestlé Stake Comments

The beauty French beauty giant's stock continued climbing Monday after its ceo neither confirmed nor denied that it would buy back Nestlé’s 29.3 percent stake.

Jean-Paul Agon

PARIS — L’Oréal stock continued climbing Monday after its chairman and chief executive officer Jean-Paul Agon neither confirmed nor denied the French beauty giant might buy back Nestlé’s 29.3 percent stake in the company.

This story first appeared in the September 3, 2013 issue of WWD.  Subscribe Today.

L’Oréal closed up 1.5 percent on the Paris Bourse to 128.20 euros, or $169.10 at current exchange.

Agon made his remarks Friday at a financial analyst meeting at L’Oréal headquarters in Clichy, a Paris suburb, where he reviewed first-half results and clarified information in a Les Echos newspaper story. Agon refuted he had said L’Oréal wished to buy Nestlé’s stake — which is valued at 22 billion euros, or $29 billion.

“All I said was…that we have considerable financial wherewithal because we have positive cash and 9 percent of Sanofi,” he explained, referring to the French pharmaceutical concern whose 2012 sales were 34.95 billion euros, or $44.94 billion at average exchange.

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Agon also said L’Oréal has cash to be used. As of June 30, the company’s net cash amounted to 572 million euros, or $735.5 million.

“We will see what the opportunities are to use it, but I am confident there will be opportunities,” he said. “We’ve always said that our stake in Sanofi was financial, not strategic. We could use it if an opportunity were to arise.”

A shareholder agreement exists including stipulations that neither Nestlé nor the Bettencourt family, which owns 30.5 percent of L’Oréal, can increase its stake in L’Oréal during the lifetime of Liliane Bettencourt, the daughter of the company’s founder who is now 90, and six months after her death. However, the parties are free to sell their shares, each of them having conceded the other a first right of refusal until April 29, 2014. Following that date, the parties may offer the stakes to any third party.

As reported, there was more buzz about Nestlé’s share in L’Oréal in late August, when Nestlé chairman Peter Brabeck-Letmathe told Swiss newspaper Handelszeitung that the company would not extend its 10-year right of first refusal agreement with the Bettencourts. He added Nestlé wishes to keep all its options open, including the status quo.

L’Oréal’s first-half net profits rose 5.2 percent to 1.71 billion euros, or $2.25 billion. Company sales increased 4.7 percent to 11.74 euros, or $15.42 billion.

“Overall, [first-half 2013] supports our belief that [full-year 2013] should be a good but not a great year for L’Oréal, with like-for-like, top-line growth [of 5.5 percent], operating margin growth [of 35 basis points] and [earnings-per-share growth of 3 percent] being average, at best, versus its peer group,” said Andrew Wood, an analyst at Sanford C. Bernstein & Co., in a research note.

He added L’Oréal stock is somewhat inflated due to the “hope/expectation that Nestlé will sell its stake in L’Oréal and that L’Oréal will undertake a mega-buyback of the shares, which would be significantly accretive.”

L’Oréal stock closed Friday up 3.2 percent to 126.25 euros, or $166.47 at current exchange.